Members of the House: Police Access
	 — 
	Question

Asked By Baroness Miller of Chilthorne Domer
	To ask Her Majesty's Government from whom the police would need to seek permission before they searched the offices of a Member of the House of Lords or intercepted their telephone or e-mail communications on the Parliamentary Estate or at home.

Lord West of Spithead: My Lords, consent to search a Member's office is a matter for the House authorities, but I would anticipate that any request by the police to search your Lordships' House with consent would be made in the first instance to Black Rod. A warrant authorised by the Secretary of State would be required to intercept telephone or e-mail communications. The Wilson doctrine applies to Members of the Lords.

Baroness Miller of Chilthorne Domer: My Lords, I hope the Minister will ensure that the police have clear guidance. Although the noble Lord has laid out a few of the parameters, is he aware of how many grey areas there are? The Wilson doctrine covers communication in transit, but once those e-mails are stored on a computer I do not believe that they are covered. Will the Minister, and perhaps the Leader of the House, ensure that all these grey areas are dealt with in the forthcoming review, including the matter of noble Lords' homes?

Lord West of Spithead: My Lords, I am very willing to say that I will look at this in much more detail. As the noble Baroness rightly points out, there are some real complexities with the electronic surveillance by security and intelligence agencies, and whether the surveillance is being done for intrusive or directed purposes. I am happy to undertake to look at this and see whether we can discover areas that need to be clarified a little more.

Lord Lloyd of Berwick: My Lords, can the Minister confirm that the Police and Criminal Evidence Act draws a clear distinction between access to a Member's office and access to his papers? Does he agree that, for access to the papers, it would always be necessary for the police to obtain a warrant? Does he also agree that, if the papers are confidential and are therefore excluded material under the Act, the warrant would have to be granted by either a High Court or a circuit judge?

Lord West of Spithead: My Lords, as I understand it, once a constable goes into an office with authority to do so, he may seize documents for a number of reasons; for example, if he believes that they may be pertinent to the precise details of the case that he is investigating. There are other reasons, such as material being relevant. It does not include items subject to legal privilege. There is a list of things, so it is not true to say that he cannot seize some of them. Therefore, I cannot agree with the noble and learned Lord on that point.

Lord Morris of Aberavon: My Lords, my noble and learned friend the Attorney-General is by custom and tradition available and obliged to advise the authorities in Parliament when requested. Will the Minister confirm that this duty specifically includes the Lord Speaker?

Lord West of Spithead: My Lords, as I mentioned last week when I repeated the Statement made by my right honourable friend the Home Secretary, as I understand it, Black Rod would speak to the Lord Speaker, the Clerk of the Parliaments and the Leader of the House. The Lord Speaker has access to the Attorney-General, and the Attorney-General would normally speak to her.

Baroness Oppenheim-Barnes: My Lords, would Black Rod be correct in delegating his authority to anybody else?

Lord West of Spithead: My Lords, I am afraid that I do not know the precise answer to the noble Baroness's question. I imagine that if Black Rod were indisposed for some reason, there must be a basis on which he can delegate his authorities, but I am not sure of the answer if he were actually within the precincts of the House. If I may, I shall get back to her in writing.

Lord Dholakia: My Lords, does the Minister have any plans to review the Counter-Terrorism Act, bearing in mind that we have the examples of Walter Wolfgang being evicted from the Labour Party conference and of an MP's office being raided by Special Branch officers with counterterrorist officers, which seem to me to bring the law into disrepute?

Lord West of Spithead: My Lords, as I mentioned last week when I repeated the Statement made by my right honourable friend, this was not done on the basis of the Counter-Terrorism Act; the Police and Criminal Evidence Act was the basis of the Metropolitan Police's actions. We have no intention at the moment of reviewing the Counter-Terrorism Act. However, there may have been cases where local councils have used the counterterrorism legislation incorrectly and very clear guidance has gone out to ensure that this does not happen.

Baroness Hanham: My Lords, the Minister referred to the Police and Criminal Evidence Act. Section 8(3)(c) of the Act states that a warrant to search premises will always be required if,
	"entry to the premises will not be granted unless a warrant is produced".
	Will Black Rod and the authorities of this House be armed with that refusal?

Lord West of Spithead: My Lords, the noble Baroness is absolutely right. They would come here if they felt that they were going to get consent without a warrant. So, for example, as I understand happened in the other place, I imagine that they would talk to Black Rod, who would take advice, and he might say, "No, I am not going to let you in", in which case they would have to get a warrant. That is what I imagine would happen. But if, of course, he was advised that he should let them in, I think that he would let them in on that advice. But I imagine that he would demand a warrant.

Lord Campbell-Savours: My Lords, if it is for the Attorney-General in certain circumstances to advise the Speaker in the Lords, as was suggested to my noble and learned friend Lord Morris, does that mean that exactly the same position exists with regard to the House of Commons; that the Attorney-General would be in a position to advise the Speaker of the House of Commons similarly?

Lord West of Spithead: My Lords, as I understand it, the Attorney-General is available to advise the other place, but I do not want to go into detail about whether or not it would require that in the circumstances that have just passed.

Lord Waddington: My Lords, if Black Rod granted permission for the police to enter the premises, that surely would not allow them to enter an individual office of an individual Peer without permission from that Peer or without having a warrant to enter that office?

Lord West of Spithead: My Lords, as I understand it, if it is a criminal investigation for a criminal act, they would have access.

HIV/AIDS
	 — 
	Question

Asked By Baroness Northover
	To ask Her Majesty's Government, in light of World AIDS Day, what further action they are taking to assist those in the poorest countries affected by HIV/AIDS.

Lord Tunnicliffe: My Lords, on World AIDS Day the UK Government launched a monitoring and evaluation document to help us to evaluate the impact of the AIDS strategy launched in June, which included commitments of £6 billion to strengthen health systems and services and £200 million for social protection programmes, in addition to the £1 billion previously committed for the Global Fund to Fight AIDS, TB and Malaria. We also announced a package of £15 million to help to revitalise and reinvigorate South Africa's AIDS response under the leadership of the new Health Minister, Barbara Hogan.

Baroness Northover: My Lords, I thank the noble Lord for his reply and for DfID's work in this area. There are now almost 12 million children orphaned by AIDS, which is double the number of only about seven years ago. How can we ensure that, despite economic recession, the needs of such children are not forgotten? Does he recognise not only the moral case here but also that the very stability of some of these countries and their communities may be undermined unless there is extremely strong international support at this time?

Lord Tunnicliffe: My Lords, the UK remains firmly committed to meeting the needs of orphans and vulnerable children. We will work to ensure that national plans of action are systematically integrated into national health education and social protection plans. Over the next three years, the UK will expand its social protection programmes to over £200 million, which will be channelled through both government and non-government organisations. On the second two points, the answer is basically that we agree. We recognise the importance of maintaining the momentum in this and other DfID areas. As my noble friend Lord Malloch-Brown said in the debate on Thursday, the Prime Minister repeated his commitment a month ago to overseas development assistance reaching 0.7 per cent of GDP by 2013. This has been echoed by the International Development Secretary and continues to be supported on all sides of the House.

Baroness Rawlings: My Lords, what is the Government's view of the use of generic drugs in the poorest countries, which has reduced the price of the antiviral treatment to about $700 a year?

Lord Tunnicliffe: My Lords, we totally support it. We support the international efforts and the publication of information about such generics to help countries to understand their opportunities. We work with other countries to make sure that both generic drugs and developing drugs become affordable in the countries where they are needed.

The Lord Bishop of Carlisle: My Lords, it is recognised that faith leaders can have a great impact on the practice of communities. I have personal experience of South Africa, Mozambique and Angola and I have listened to a South African Anglican bishop powerfully preaching to a congregation about HIV/AIDS. Yet less than 5 per cent of the global fund for HIV/AIDS has been directed to faith-based groups. What are the Government and DfID doing to support faith groups in delivering programmes in partnership with government and to analyse the effectiveness of current AIDS spending to engage more effectively with the problem?

Lord Tunnicliffe: My Lords, I do not have specific information on the extent to which we help faith-based groups. Most of our money in DfID is spent through country programmes, which are focused where they can be most effective. Certainly, where a faith-based group helps in such a programme, we would co-operate with it.

Lord Avebury: My Lords, considering that children with HIV/AIDS are 40 times more likely to contract pneumococcal disease, a family of diseases that kills 1.6 million a year, will the Government consider integrating pneumococcal disease into their strategy and giving it the same prominence as they do malaria and TB, in consultation with the Global Alliance for Vaccines and Immunization and its initiative PneumoADIP, which promotes this strategy?

Lord Tunnicliffe: My Lords, the simple answer is yes. We entirely take the point that pneumococcal disease should be considered alongside the three other killers. We are supporting the organisations that the noble Lord mentioned.

Baroness Morris of Bolton: My Lords, it costs less than £1 to stop mother-to-child transmission of HIV/AIDS. What particular steps are the Government taking to ensure that these vital drugs reach pregnant women? In 98 per cent of cases that treatment can mean that they do not pass on the virus to their children, yet only about 10 per cent of pregnant women get these antiviral drugs.

Lord Tunnicliffe: My Lords, we share the view that transmission from mother to child is crucial and we are featuring that in all our country programmes. The whole programme is built around prevention, treatment, care and support. Prevention of mother-to-child transmission is crucial and has our full support in country programmes.

Baroness Gardner of Parkes: My Lords, the Minister mentioned prevention. This country has been doing research into various barrier creams and preventives, which would be of great benefit to the whole world. What progress is being made? Are we continuing that research and are we anywhere near an answer?

Lord Tunnicliffe: My Lords, the area into which we are putting particular efforts is microbicides, which we think will have a key effect. We are involved with and support trials. Microbicides are particularly effective for women, because HIV/AIDS is becoming a feminine disease, particularly among heterosexual communities. We have funded this to the extent of £50 million and we will carry on funding it. Unfortunately, we fear that it may be as much as three years before we start to see some positive results from those trials.

Baroness Billingham: My Lords, may I ask the Minister a practical question, which follows on from the earlier question about delivery and about children in particular? Everyone is aware that dealing with this area is one of Save the Children's most fundamental tasks; its people in this field in deprived areas are perhaps those who are working in the most positive way. In what ways are the Government working alongside such agencies, which already have much expertise, rather than having to create our own?

Lord Tunnicliffe: My Lords, we universally try not to reinvent programmes that are serving these countries well. Our money will mostly go into programmes that are already there. In general, we do not invent programmes centrally; we support country commitment, civil society and Governments in those countries that are being effective.

Government Departments: London Living Wage
	 — 
	Question

Asked By Lord Harries of Pentregarth
	To ask Her Majesty's Government whether they will encourage all government departments to follow the example of the Department for Children, Schools and Families by paying all staff and sub-contracted staff at least the London living wage from April 2009, currently £7.45 per hour.

Lord Myners: My Lords, decisions on public sector pay are for individual departments and agencies. Pay awards must reflect recruitment and retention, be affordable, represent value for money and be consistent with achievement of the 2 per cent inflation target. There is no set level for any individual work force. A number of recent pay awards—for example, at the NHS, DWP, DCSF and the coastguards—have specifically targeted pay towards those on the lowest incomes. Additionally, London weighting is paid to many public sector workers in London.

Lord Harries of Pentregarth: My Lords, I thank the Minister for his reply. Is he is aware that the previous Mayor of London and the present one, Boris Johnson, strongly support the London living wage, as do a growing number of companies in London? Is it not the role of government to support good practice wherever it may be found, in particular, the good practice shown in this instance by the Department for Children, Schools and Families?

Lord Myners: My Lords, I thank the noble and right reverend Lord for his observation. The Government at all times seek to be a responsible employer and set high standards in respect of their arrangements with their employees for childcare, flexible working and so on. We also have an overriding obligation to deliver value for money. Accordingly, we set remuneration levels to meet our requirements in that respect. I appreciate the work done by London Citizens, which I met in my previous capacity as chairman of the Low Pay Commission; but the London living wage is not equivalent to the national minimum wage that is produced by the independent Low Pay Commission, which publishes reports and evidence supporting its recommendations. The London living wage is the recommendation of a group which is not transparent in its processes and, of course, does not take into account other forms of benefit and support available to those on low incomes.

Lord Maclennan of Rogart: My Lords, is not the Minister aware that the research has been based on close studies commissioned by the Joseph Rowntree trust with the Centre for Research in Social Policy at the University of Loughborough and the Family Budget Unit at the University of York? Will he not look at this again very closely, particularly in view of the Cabinet Office's self-proclaimed responsibility for ensuring equality of treatment of all civil servants?

Lord Myners: My Lords, I assure noble Lords that the Government are very aware of those obligations. By way of further explanation, I do not believe that the agreement that the Department for Children, Schools and Families has reached will mean that its total employment costs will be significantly different from those of any other government department.

Lord Inglewood: My Lords, from the Minister's response to the noble and right reverend Lord, Lord Harries, it was not clear to me whether he thought that the Department for Children, Schools and Families had been right to pay the recommended rates of the London living wage. Does he agree that it was right to pay those levels and, if it was, would it be right for equivalent salary levels to be paid to those doing equivalent work elsewhere across the public sector?

Lord Myners: My Lords, it is absolutely right that the department has the flexibility to make that determination, and I believe that my Answer to the Question shows that there is no misalignment between compensation for employees of the Department for Children, Schools and Families and other major government departments.

Euro
	 — 
	Question

Asked By Lord Dykes
	To ask Her Majesty's Government what assessment they have made of how conditions for United Kingdom membership of the euro may alter in coming months.

Lord Myners: My Lords, the Chancellor announced in the 2008 Budget that,
	"the Government does not propose a euro assessment to be initiated at the time of this Budget".
	The Treasury will again review the situation at Budget time next year, as required by the Chancellor's June 2003 Statement.

Lord Dykes: My Lords, is that not a disappointing reply? Does the Minister not agree that our excessive non-sterling debt liability is only one of many factors pointing in this eventual direction? If successful economies, such as those of Germany, France, Italy and Spain, can benefit so much from euro membership, why cannot Britain?

Lord Myners: My Lords, I do not regard it as a disappointing Answer. It is rooted in a very clearly stated policy from October 1997 that in principle this Government believe that it is appropriate for us to join the single currency but only on satisfaction of critical conditions, as set out in the five tests and three supporting principles. That continues to be our view, and the Chancellor of the Exchequer will no doubt advise the other place should that change.

Lord Pearson of Rannoch: My Lords, further to the supplementary question of the noble Lord, Lord Dykes, have Her Majesty's Government studied the recent analysis from the Conseil d'Analyse Economique—perhaps the leading French economic think tank, which reports direct to the French Prime Minister—which concluded that neither the euro nor the single currency has had any positive effect on the French or any other European economy since inception?

Lord Myners: My Lords, I am afraid that I have not read the report but I am sure that the people in the Treasury have. I remind noble Lords that in terms of drawing on academic and independent research this Government's response in 2003 was probably the most thorough, complete and independently supported conclusion that we have seen on euro membership. We concluded that that was not the appropriate time to join the single currency, particularly because there was clearly not economic convergence or sufficient flexibility within the European and British economies. We are seeing that convergence and flexibility continue to move forward within Europe but they are still not being fully achieved. We will watch those developments with interest.

Baroness Noakes: My Lords, last week the EU President offered the view, gratuitously, that the UK would have been better off in the current turmoil if it had already been part of the euro. Does the Minister agree that, had we been foolish enough to join, our economic position would have been very much worse?

Lord Myners: My Lords, I was not privy to the conversations that Mr Barroso had. He said that he was speaking to people in the know who were responsible and respected. I was not one of those, but I believe that the views he expressed were his. I do not think that the conversations he had were linked to anybody in particular. Accordingly I have nothing further to say in response to the noble Baroness, Lady Noakes, on that matter.

Lord Hamilton of Epsom: My Lords, does the Minister feel that we are nearing the moment when one of the countries involved could drop out of the eurozone? The difference in the interest rate being paid in Greece and in Germany, for instance, has now reached 123 points. Is it not only a matter of time before one of the countries gives up the euro entirely and returns to its own currency?

Lord Myners: My Lords, one reason why the Government have been so cautious is our recognition that the decision to join the euro is irrevocable and according to a fixed rate of interest prevailing at a particular time. From that point on, one is bound to that exchange rate and the interest rates consequent upon it. That is why we proceed with great care. I would imagine that the countries that joined the euro proceeded with similar careful consideration and concluded that it is an irrevocable and lifetime commitment.

Lord Jones of Birmingham: My Lords, are we not, with respect, dancing on a pinhead here? The point is not whether the conditions are right but, as the Minister just said, that adopting the euro is an irrevocable act and the success or failure of the nation's economy for years ahead will be defined by the rate at which we join. I have in mind particularly the rate at which Germany came in and the rate at which France came in. Is any work being done on the tolerance in negotiation regarding the rate of entry, should certain Members of your Lordships' House ever have their way?

Lord Myners: My Lords, the rate is the absolutely critical issue at the point of entry. However, a fixed rate that does not take account of the fact that different economies are in fundamentally different points in their cycles will rapidly prove to be the incorrect rate. The tests around convergence, flexibility, capacity to attract investment, support for the large financial services sector which we have in our economy and the overall contribution to stability, growth and employment are therefore critical. Those are all partly pulled together in the rate but it would be overly simplistic to see the rate as the starting point for the decision; rather it is the point at which we get alignment. At that point we crystallise and at that point entry would be a viable option. Until we are at that point it would be wrong to speculate on the rate. However, within the Treasury there are people constantly reviewing the progress of the European economies vis-à-vis our economy and those elsewhere in the world.

Lord Sheldon: My Lords, is it not clear that France, Germany, Italy and Spain have, since they joined, done extremely well out of the resulting combination? Given the way in which the pound has fallen over the past few months, is it not clear that we need to look again at whether we should be joining?

Lord Myners: My Lords, my noble friend Lord Sheldon is perhaps missing the point that, in six of the past seven years, the UK has been the second fastest-growing economy in the G7. Our not being in the euro seems to have been no impediment to our achieving high rates of growth, low rates of inflation and low rates of unemployment.

Lord Newby: My Lords, as the Minister will be aware, Europe is increasingly co-ordinating its economic policy through meetings of the eurozone Finance Ministers, of which we are not a member. How do the Government intend to make sure that their influence is fully felt across EU decision-making in economic policy when they are not sitting at the table?

Lord Myners: My Lords, there is no reason to believe that the views of the Prime Minster and the Chancellor of the Exchequer are not well heard in Europe.

Lord Soley: My Lords, does my noble friend agree—third time lucky—that it would be a serious mistake to rule out entry into the euro for all time, as the shadow Chancellor of the Exchequer in the House of Commons appears to have done? Does he also recognise that the British situation is rather different from that of a number of other European countries, not least because our economic cycle tends to track that of the United States rather than that of Europe? That makes his point about the level at which we enter a particularly important and sensitive one for the UK economy.

Lord Myners: My Lords, the Government's position remains that in principle we are in favour of joining the single currency. I am glad that I do not have to defend the views of Mr George Osborne, as I think that I would find myself spinning to the point of complete dizziness.

Lord Barnett: My Lords, does my noble friend accept that even though the five tests never made any sense in 1997 and do not now, the chance of the Government going for a referendum on the issue is so remote that it would be as well for him to say that we have no intention of joining?

Lord Myners: My Lords, my noble friend may well be right in his comments about the tests in 1997, because they were not actually published until 2003. They were published in June 2003 for the benefit of the noble Baroness, Lady Noakes—who looks somewhat perplexed—in terms of our assessment of our progress against them. That is what gave the tests body and form. Our position continues to be that in principle we are in favour of joining the single currency.

Lord Roberts of Conwy: My Lords, we have slipped from being the fourth richest economy in the world to being the sixth. Has that anything to do with our absence from the euro?

Lord Myners: None that I am aware of, my Lords.

Equal Pay and Flexible Working Bill [HL]
	 — 
	First Reading

A Bill to amend the Equal Pay Act 1970; and to make provision about flexible working.
	The Bill was introduced by Baroness Morris of Bolton, read a first time and ordered to be printed.

Arrangement of Business
	 — 
	Announcement

Lord Bassam of Brighton: My Lords, there being 45 Members on the speakers list for the debate on the humble Address today, if Back-Bench contributions are kept to seven minutes we should be able to rise tonight at around the target rising time of 10 pm.

Queen's Speech
	 — 
	Debate (3rd Day)

Moved on Wednesday 3 December by Lord Falconer of Thoroton
	That an humble Address be presented to Her Majesty as follows:
	"Most Gracious Sovereign, We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."

Lord Mandelson: My Lords, it gives me great pleasure to open this debate on business and the economy. I confess to feeling somewhat in awe of the wealth of expertise and experience that surrounds me in this House today. It is enough to make me feel again like a tender PPE student facing my first economics tutorial.
	There are unprecedented economic challenges now facing us in Britain and throughout the global economy. As I suspect many will observe today, this is not some ordinary recession. It is the hard-to-resolve crisis in our banking system that transforms what our business sector is experiencing. The unprecedented economic turbulence is testing Governments around the world. I do not say this to dodge responsibility or play down the scale of the domestic challenge but, for those of us brought up on the adage that when the US economy sneezes the rest of the world catches a cold, last week's news that US unemployment has risen by more than half a million in a single month is another challenging statistic.
	US economic output is falling. The eurozone economy has officially entered into recession. Growth in China and India has slowed sharply. The IMF forecasts that in the advanced economies, including the UK, output will contract in every quarter of 2009. To observe that this is a combination of events not seen since the Second World War is not a shocking revelation; it is the simple truth. The global financial system has been severely damaged, and we cannot yet be certain whether enough has been done to get it working again as it should and as we need it to do.
	In these circumstances, people rightly look to the Government to act. To have a Government whose only response is "Let's do nothing" would be alarming and unsustainable. Of course the actions have to be carefully weighed and difficult judgment calls are involved, but inaction must also be weighed, particularly given the effect that doing nothing will have on the confidence of consumers and other actors in our economy.
	The Government have had another simple fact in mind. The further our economy falls and the further we go into this downturn, the higher will be the costs of climbing out again and the greater the long-term damage to our economy and to our society. Therefore, the Government have to do everything that they can to ensure that this recession is as short-lived and as painless as possible. I say this because my mind goes back to the recession of the early 1980s. I recognise that, in all sincerity at the time, many distinguished Members of this House—former Chancellors of great calibre such as the noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Lawson of Blaby—felt that there was no alternative to the policies that they then pursued. Although I agree with them that the loss of jobs in the old heavy industries was inevitable over time, economic conditions became so severe that many businesses that might otherwise have survived and prospered went to the wall. We are therefore right to do what we can to avoid this happening again on such a scale.
	When I was first elected to the other place in 1992 for my constituency of Hartlepool, I saw at first hand the social scars that the huge unrestrained rise in unemployment had left behind as businesses failed, skills were put on to the scrapheap and talents were wasted. Those scars have still not fully healed despite all the efforts made since, including the first efforts at economic regeneration to which the noble Lord, Lord Heseltine, gave a lead.
	Some people talk today of broken Britain. I do not believe that in any general sense Britain is a broken society, but the damage done by the recession of the early 1980s to social inclusion in our society has been lasting, and we are right to say "Never again" and to do what we can to stop history repeating itself. This is not a choice but a responsibility. The Government have already taken decisive action, and we stand ready to take more as this period of great uncertainty unfolds. The economic and business measures set out in the Queen's Speech reaffirm our determination to support and protect businesses and families as best we can through this crisis and to prepare our economy for the global challenges that we will face as we emerge from the downturn.
	This is a global crisis that demands a global response. This Government have led calls for co-ordinated international action to get the world's financial system working again and to introduce much needed supervision in the regulation of the banks. It should go without saying that global institutions assuming fresh responsibilities need to reflect the new realities, and indeed the new balance of power, of economic globalisation. Last month in Washington, G20 leaders agreed to fundamental reforms in line with the principles that Britain has for some years been promoting—largely, it has to be said, in the person of the Prime Minister, who has applied both intellect and force of personality to these questions. We need transparency, integrity and accountability in the rules each of us operate in our banking systems so that similar mistakes—those that have been made in the recent past—are not made again.
	When the UK takes over the presidency of the G20 at the beginning of next year, we will lead on action to implement this reform agenda. The core, immediate challenge faced, not just in the UK but around the world, is to get liquidity back into our banking system and the global economy. We have taken comprehensive steps—including the special liquidity scheme delivered through the Bank of England, our recapitalisation programme and the credit guarantee scheme—to strengthen UK banks, improve liquidity and return confidence to the interbank lending market.
	These measures are making a difference and the Government will, of course, consider with the banks what additional refinement of them may be desirable. The sterling LIBOR rate has fallen in recent weeks and we are now monitoring bank lending patterns with the Bank of England, the FSA and other regulators. This morning I chaired the second meeting of the Small Business Finance Forum that I convened the other month. I am pleased to say we reached agreement today with the banks and SME representatives on a revised statement of principles which will govern SME bank lending in future. The Prime Minister has stated that the current Banking Code will also be put on a statutory footing. The statement of principles that we agreed today will be folded and incorporated into that Banking Code. The FSA is already consulting on new rules applying to retail banking services, in place of self-regulation, to be enforced by next year.
	This and other provisions in the Banking Bill will provide the UK authorities with tools to address difficulties in the banking sector and protect depositors and the wider economy. Shortly, the Chancellor and I will meet in the high-level lending panel to review more detailed data being collected and analysed by the Bank of England. Initial evidence from the big five UK banks shows that total outstanding lending to SMEs remains relatively stable compared to a year ago. There is evidence of reduced demand for finance. That is inevitable, but we are also beginning to see some evidence of overdrafts being withdrawn and overdraft limits being reduced. However, these moves are affecting only a small proportion of SMEs, as was confirmed by a survey of 5,000 SMEs undertaken by the Federation of Small Businesses and reported to my meeting this morning.
	We expect banks to play their part in ensuring that viable businesses do not fail for lack of credit. I welcome the recent initiatives from RBS, Lloyds TSB, HBOS and HSBC on SME lending, particularly RBS's commitment not to change overdraft pricing arrangements for small businesses for 12 months from the date they are agreed, the commitment of Lloyds TSB not to change the price or availability during the period of a customer's agreement, and HSBC's announcement yesterday of a new £1 billion working capital fund for SMEs. This shows the productive nature of the Government's close working and dialogue with the banks, and I urge others to follow suit. The Government are also taking action to help people who suffer a significant and temporary loss of income, as a result of the economic downturn, to stay in their homes by enabling them to defer a proportion of the interest payments on their mortgage for up to two years.
	In these extraordinary circumstances, there is wide international agreement on the urgent need to maintain demand in our economies. The Bank of England has already implemented a co-ordinated interest rate cut with six major central banks and, last Thursday, it cut rates to 2 per cent, which is the lowest since 1951. However, it is very clear that monetary policy will not on its own provide the necessary stimulus. Commentators from the IMF, the OECD and, nearer home, the Institute for Fiscal Studies—as well as the former Chancellor, Kenneth Clarke, before his Front Bench moved rather sharply to silence him—have rightly observed that in these exceptional circumstances an additional fiscal stimulus is needed. Yesterday, President-elect Obama added his weighty voice to this conclusion.
	At the Washington summit, G20 leaders agreed the need for co-ordinated fiscal action to boost economic demand, with the US, the European Union, China, Japan and other countries all now bringing forward their own measures. They will not be identical, or implemented at the same time, but all will take the same sort of initiative and will go in the same direction.
	In the UK, the Chancellor's Pre-Budget Report brought forward £3 billion in government investments in Britain's vital motorways, social housing, schools, hospitals and energy efficiency. It provided £1 billion of targeted tax cuts for SMEs and a temporary reduction in VAT—also specifically urged by Kenneth Clarke before the intervention—which is the equivalent, all told, of the Government giving back £12.5 billion to consumers and businesses. The Pre-Budget Report will also provide direct assistance to our vital small business sector, with, among other things, £2 billion of loan guarantees.
	Crucially, there will be new latitude from Her Majesty's Revenue and Customs—latitude and HMRC not being two things that often go together—that means small businesses facing temporary financial difficulty will be able to spread payment of their tax bills over a timetable that they can afford. I welcome that move by HMRC. There will also be a raised threshold for business rates on empty properties, which will exempt an estimated 70 per cent of them. The Government have also guaranteed prompt payment of their own bills—within 10 days—to businesses. Regional development agencies are creating new transitional loan funds for the companies which are hardest hit in their localities. I do not guarantee that every needy business can be helped in one or more of the ways that I have listed. But I hope that, while the Opposition will not join the consensus in favour of action for the reasons that they will no doubt try to explain, the rest of us can agree that extensive action is better than no action at all.
	Essential to our continued competitiveness will be, first, ensuring a regulatory framework that supports and does not stifle the conditions for business success—in these difficult times, it is more important than ever that we only ask businesses to adapt to new regulations where the case is compelling—and, secondly, ensuring the maintenance of a highly skilled, highly productive workforce prepared for the future.
	The Government have relaxed the funding rules for Train to Gain to give SMEs the training they need. We are also bringing forward measures to help business develop the potential of their employees. The children, skills and learning Bill will establish a new skills funding agency to ensure a simpler, more business-focused training and skills system. To help boost our skills base and business competitiveness, the Bill will give all employees in Great Britain the legal right to request time to train, providing around 25 million people with the chance to work with their employer on their development needs, with the requirement that their training helps to improve business performance and productivity.
	In addition, the Bill will give all suitably qualified young people the legal right to an apprenticeship from 2013. We are establishing the national apprenticeship service, the first ever such service dedicated to apprenticeships. We have expanded the apprenticeship programme threefold over the past 10 years and we are determined that it should continue to grow
	Unlike in previous recessions, the Government have acted to protect and advance essential investment in the public sector, but as we recover from the recession we will give top priority to rebalancing the public finances. The overwhelming means of achieving this will be through tighter public spending restraint, not tax increases, though at a time of acute economic difficulty the broadest backs will bear the bigger burden, as I am sure noble Lords will agree is right and fair. But the restoration of sound finance will require the Government to redouble their efforts to ensure belt-tightening and value for money across the board. The Government expect to be able to set against borrowing more than £30 billion in greater efficiencies in the next spending round. Discipline on public spending growth will keep it to little more than 1 per cent. This will be tough, but is in contrast to the Opposition's declared intention not just to limit growth but to cut into the core of public spending and our nation's investment programmes. I am sure noble Lords will look forward to hearing from the opposition Front Bench the costed detail and impact of the cuts they have in mind.
	We are bringing forward measures that will not only help businesses and families, but also enable us to rebalance our public finances in the medium term. I am determined that the Government will continue to work with British businesses to ensure that they have all possible help in weathering the downturn and emerging ready to face a new generation of challenges. For example, to support those working in the construction sector, we are helping apprentices facing redundancy find other employers to help finish their training. Through the energy efficiency employment initiative, we will match those workers who lose their jobs in housebuilding with employment opportunities such as insulating homes and businesses, and improving energy efficiency across the country. The Government are open to further ideas to provide much needed alternatives to unemployment.
	For UK car manufacturers, we are lobbying for €8 billion of European funding for investment in automotive energy efficiency projects. For this industry and dozens of others, including those associated with nuclear power and other renewables, there are huge opportunities in the global shift to a low-carbon economy. Next year we will set out a low-carbon industrial strategy to help UK industries develop low-carbon operations and succeed in these lucrative new markets as they emerge.
	I realise that the Opposition will need to make out that Britain is unprepared for this economic turn of events—and, of course, will blame it all on the Government—but the foundations that we and business have built in Britain over the past decade will serve us well in moving from this downturn to recovery and beyond. We have built an enterprise culture in this country that rivals any in Europe and is ready to take on any in the world. The challenges we face are both immediate and more long term: resolving the banking crisis and putting our financial sector on a sound footing once again as we unravel the complex credit derivatives, credit default swaps and other obscure financial products that have contributed to the banks' problems; ensuring that the Government help people and businesses through the downturn as best we can; investing in vital infrastructure, vital research and development and new technologies and skills so that Britain is ready to meet the upturn with confidence and competitive strength; acting to ensure that the European Union's competition and state aid laws remain intact under the inevitable pressure they will come under; and ensuring that the EU's doughty trade commissioner sets her face against any attempts to roll back Europe's stand against protectionism while bringing the WTO's Doha round to a successful conclusion.
	The Government have a clear sense of the scale of these tasks and a commitment to meeting them head on. I hope the Opposition will feel able to wish us well for the country's sake rather than wish failure upon us for their own sake. We will now hear from the Opposition, but I commend these measures to your Lordships and to the House.

Baroness Noakes: My Lords, I thank the Secretary of State for opening today's debate. I agree with one of his statements—that is, we wish the Doha round well in the interests of this country and the global economy.
	The gracious Speech stated,
	"My Government is committed to helping families and businesses through difficult times",
	but there were no policies in it to relieve the pressures on struggling businesses. Instead, the Business Rate Supplements Bill is designed to tax them further.
	Only three weeks ago, the Chancellor claimed in his PBR speech that the Government were delivering,
	"a comprehensive package of support for business",
	and that the PBR would,
	"help businesses through their current difficulties and enable them to invest".—[Official Report, Commons, 24/11/08; col. 498.]
	That is not how business saw the PBR: it saw a web of hidden tax costs and tax rises for business.
	The Secretary of State recently delivered a lecture at Chatham House. Many were surprised that the noble Lord started his speech with an anecdote about his relationship with the Prime Minister along the following lines: Prime Minister to Lord Mandelson, "Are you happy, Peter?"; Lord Mandelson to Prime Minister, "If you are happy, then I am happy". I know this is rather difficult to believe. I am not going to dwell on what this exchange tells us about the relationships at the heart of government, tempting though that is, but I am going to turn the question around. Secretary of State to business: "Are you happy, business?". Business to Secretary of State—our Standing Order on asperity of speech precludes me from giving the exact response but the paraphrase is—"You must be kidding".
	The noble Lord might have thought that he could come in from Europe on his white charger, wave a magic wand over the business world and all would be well, but he may not have realised what his Government have done to business. There has been a decade of irresponsibility on the economic front which has left our economy ill prepared for the recession that we now face; a decade in which the real needs of business have been neglected.
	Since his return to government, the Secretary of State has been rarely absent from the media. He has been engaged on a busy round of meetings, forums, dinners and speeches—sometimes, although not always, about business issues. The question is whether, to echo to the noble Lord's own words in his maiden appearance at the Dispatch Box, he has been toiling or spinning. Business has seen little so far about which to rejoice.
	My noble friend Lord De Mauley will wind up for these Benches and focus on the issues for business. Before I turn to the economy, I shall sketch out the past decade from a business perspective. In the years running up to 1997, manufacturing employment was growing again. Since then, 1 million manufacturing jobs have been lost and more are now threatened. Our labour flexibility has been eroded and is threatened still further by the European Parliament which, with the backing of Labour MEPs, plans to end our working time directive opt-out. We are now 12th in the World Economic Forum's competitiveness index; we were fourth in 1997. More than 34,000 new regulations have been introduced which the British Chambers of Commerce estimates have added £65 billion to business costs. Our tax code is the longest in the world and probably the most complex. We have lost our tax competitiveness.
	The Government have neither supported nor valued the businesses on which our national prosperity ultimately depends. We now hear that the Secretary of State regards the Government's industrial policy as insufficiently joined up. He has suggested that we need a "more capable strategic state" and a "smart state", and he has even promised a more active industrial policy. If there is one thing that business wants, it is less government and not more.
	However, there is one thing that businesses need now: finance. The Government have pumped billions of pounds of taxpayers' money into saving the banking system, but, so far, it has done nothing for British business. The Queen's Speech referred to the Banking Bill, which has already largely completed its passage in another place—I shall save my detailed comments on that until our Second Reading next week—but that Bill is largely about the next banking crisis and not about today's issue of getting the banks lending again.
	On that, the Government have sent mixed messages. They have talked about overleveraging, repricing risk and the regulation of liquidity, all of which suggest less and more expensive bank lending. But at the same time they have indulged in publicly hectoring the banks to increase lending. They have failed to get to the core of the issue, which is loss of confidence at the heart of the banking system. The Secretary of State told us today about a new statement of principles and various other actions. We shall see whether they have any impact in practice or it is just more words.
	My party does not advocate taking no action, and no matter how many noble Lords opposite say that will not make it true. We have proposed a national loans guarantee scheme for banks which will allow confidence to return to business lending. We have also proposed that government consider guaranteeing credit insurance so that non-bank credit can be restored to normality. We hope that the Government will start to try solutions that work with the grain of the commercial world.
	This is our first opportunity to debate the Pre-Budget Report. We had a hugely important debate on the economy at the beginning of November. Even the most pessimistic of us in that debate did not foretell the full horror of the prospects for our economy unveiled in the PBR. The Chancellor had already trailed his coat on the abandonment of his predecessor's fiscal rules, but it still came as a shock to find that they were to be replaced with a "temporary operating rule" of the "I'll do what I like" variety.
	Even more shocking is that debt will reach a 40-year high in 2014 at 57 per cent of GDP, and that annual borrowing as a percentage of national income will reach a 63-year high next year. I hope that the Benches opposite recognise that all of those figures are worse than any during our last spell in government.
	The Government's figures conveniently ignore huge chunks of debt. It used to be the PFI and Network Rail, but these are now dwarfed by the exclusion of the cost of the various interventions in financial markets. The PBR quantifies this as a whopping eight percentage points in this year. A true figure of the liabilities overhanging our economy would also include unfunded public sector pension liabilities, which would add another 60 or 70 percentage points, but then we might really start to frighten ourselves.
	None of this has fooled the markets. Concern about the scale of borrowing that we will have to undertake led to credit default swap prices going through 100 basis points last week for UK government debt. This is higher than for some UK corporates and the leading economies in Europe. More graphically, the foreign exchange markets have taken fright. Sterling has lost more than 25 per cent of its value in the last year, and the collapse has accelerated since the PBR, with the largest single-day fall since we exited the exchange rate mechanism on Black Wednesday.
	The Government's narrative—which we have heard again today—is that the recession is a product of events outside the UK and outwith our control. This is plainly untrue. The Government at home have overspent and over-borrowed. That is what gives our economy less scope for fiscal measures now. Our structural budget deficit, created by the current Prime Minister, is one of the worst in the world and we even compare badly with the leading economies in Europe. The Prime Minister believed his own hubristic statements about abolishing boom and bust, and failed to use the good times to prepare for the bad times that now beset us.
	The Chancellor wanted the story of his PBR to be one of fiscal stimulus, where the Prime Minister pretends that he is leading the world. The real story is one of small tax cuts today followed by an indefinite period of tax rises and expenditure cuts. The centrepiece was a reduction in VAT, but it is far from clear what effect that will have. A reduction of slightly over 2 per cent in selling prices, in an already heavily discounted marketplace, will have little immediate impact on consumers, even assuming that they want to spend, but it has certainly cost businesses a huge amount to implement. The next big tax measure was the continuation of the higher personal allowances with which the Government attempted to bribe the electors of Crewe and Nantwich. This is a giveaway on paper only, because no one expected that the Government could take those allowances back next year.
	The Government take voters for fools. As the Institute for Fiscal Studies has shown, the class-envy increase in the top rate of tax is likely to yield nothing. The rest of the package will hit people earning more than £19,000 a year. Do the Government really think that the PBR is going to stimulate anything but outrage once taxpayers see the reality of higher national insurance contributions, permanent excise duty hikes and the other tax rises that have not yet been revealed? The small print of the PBR contains spending cuts allegedly achieved by £5 billion a year of additional value-for-money savings. The last round of efficiency savings was demonstrated by the National Audit Office to be largely without substance. We do not believe that fairy stories should be allowed to underpin the public finances, and this would not be allowed under our proposals for an office of budget responsibility. At the heart of the PBR are the Government's forecasts for growth in the economy. We fear that they are too bullish about the depth and length of the recession. That is the view of the OECD, the IMF and the Bank of England. Do the Government have a plan B if that view proves correct, and their view proves incorrect?
	In Question Time earlier, we had an exchange on whether we should join the euro. I asked the noble Lord, Lord Myners, what the Government's position was on Mr Barroso's view that we would have been better in the current market conditions if we had joined the euro. The noble Lord did not answer the question then, but I hope that when he winds up this evening we will get a straight answer. Our view is very clear—that we would certainly have been damaged had we joined the euro earlier—but I would be interested in the Government's view. If the noble Lord is in any doubt, perhaps he would like to consult the important person sitting next to him, who I am told takes part in these conversations.
	There is nothing in the Queen's Speech providing any remedy or relief for businesses struggling to keep afloat in difficult markets that have been deserted by consumer confidence. There is certainly no vision for the future. Similarly, there was little in the PBR that gave comfort to taxpayers. That made it absolutely clear that the cost of 10 years of misrule by the party opposite will haunt taxpayers for a very long time to come.

Lord Razzall: My Lords, it is always absolutely fascinating to hear the views of the noble Lord the Secretary of State. Indeed, one has only to open any Sunday paper to see that he is now the most powerful Cabinet Minister outside the Prime Minister. If he describes the Prime Minister as Moses, perhaps he is John the Baptist. From looking at the number of noble Lords who put their names down to speak in this debate, it is clear that many people wish to share in the stardust that he sprinkles among us.
	As the old Chinese cliché would say—and I am sure the noble Lord would accept it—we live in interesting times. The great imponderable question is whether we are facing a short, sharp recession in which after a while the normal rules of fiscal correction will apply, or a deep depression involving serious deflation in which the normal rulebook must be torn up and new remedies tried. It is not entirely clear to me which of those two views the Government take. There certainly seems to be some divergence on that issue between monetary and fiscal policy. Clearly, the action of the Bank of England to lower interest rates to their lowest since 1951 indicates that the Bank takes the view that the depression risk is now much more serious than the inflation risks that it was concerned about previously. In rescuing the banking system, that view seemed to be shared by Her Majesty's Government, with their unparalleled taking of shareholder positions in certain banks and control of others.
	This afternoon, the Minister seemed to indicate that he takes the view that we have a danger of deep depression and deep deflation, rather than a simple short and sharp recession. However, in the Pre-Budget Report, the Government seem to take rather the opposite view. If we are heading for a deep depression, do we seriously think that a 2.5 per cent cut in VAT will be the remedy that will cure the problem, particularly in the context of high-street retailers offering 20, 30 or 40 per cent discounting, as we saw on our television screens in Oxford Street on Saturday? Are we seriously suggesting that a 2.5 per cent VAT cut will make the slightest difference to the problem, if the problem is the one that the Minister fears it is?
	My party gave general support to the support that the Government implemented for the banking system over the past few months. We were the first party to call for significant cuts in interest rates, which have now been more or less achieved, but we have parted company from the Government on the Pre-Budget Report. We believe that significant income tax for what the Government always like to call "hard-working families" would be more likely to increase consumer spending in the short term.
	I take issue with one of the Minister's remarks. In this House, we do not have the Government and the Opposition, but the Government and two opposition parties, the Conservatives and the Liberal Democrats—and that does not include the opposition of many who sit behind him.
	The Conservatives have said very little about what they would do to help business. They refuse to acknowledge the need for a fiscal stimulus. I listened very carefully to the noble Baroness, Lady Noakes. They are muddled over monetary policy and have rehashed old tax policies—giving tax breaks to employers to take on the long-term unemployed—that will not stimulate demand and will not work in the current economic climate. Dr Vince Cable said in another place that he was surprised at the Conservative Party, because he does not remember Winston Churchill saying, "We are not sure if we are going to fight on the beaches, because we are worried that the gilt market will complain about the cost of munitions".
	Listening to the Conservatives today, I say that they are in danger of making the error that was made in the United States in 1932 to 1940. This Conservative Party would not have supported Roosevelt's New Deal in 1932, which, between 1932 and 1936, was primarily responsible for pulling the United States out of the deep depression that had ravaged the country. It would also have made the same mistake as Roosevelt did in 1937, when, faced with his own deficit worries, he sharply reduced government spending and raised taxes. The result was a serious recession in the US economy that only the Second World War solved.
	If we are to avoid a depression, there is common ground between all of us that the banks must resume their lending, both to large firms and SMEs. I was interested in the remarks of the Minister about the research done by the banks, because there is a clear mismatch between what some of us hear on the ground about the experience of businesses and individuals with loans and overdrafts, and the statistics given at the top level by banks to the Government. I will read with interest the survey referred to by the Minister on exactly what is happening on the ground.
	Looking at the banking sector, it seems that all the remarkable skills of the Minister will be required if he is to pull together three conflicting objectives of the banks. First, the banks and the Government wish to ensure that the taxpayer receives a proper return and profit from investing in the banks. Some of the preference dividend coupons being suggested could be very significant in protecting taxpayers' money and giving a return.
	Secondly, the banks and the Government wish to improve the capital ratios of the banks. When tackled on "Any Questions" two or three weeks ago, Angela Knight, who now speaks for the banks, said that the money put in by the Government was not available to increase lending because it was being put in to improve the capital ratios of the banks.
	Thirdly, we have the desire of the banks, the Government and the FSA to improve liquidity to prevent future runs on the banks. Many noble Lords will have seen the FSA consultation document. If the proposals are implemented, they will require banks, by next October, to hold a significantly greater proportion of their assets in a liquid or relatively liquid form. If taxpayers need to make a profit and get their money back, if the banks have to improve their capital ratios, and if the banks are required by the FSA to improve their liquidity, how on earth can they also maintain their lending? Two plus two will not equal four in that instance.
	I know that the Minister is not responding to this—it will be the noble Lord, Lord Myners—but does he, in that context, believe that the Bank of England and the Government should start following the suggestion of the Federal Reserve that more unorthodox methods from the armoury of monetary policy are needed? By that I mean further large-scale direct lending to banks, the buying up of credit products, and other forms of the so-called quantitative easing that arguably pulled Japan out of its recession of the 1990s. I would welcome a response on that from the Minister winding up the debate when he does so.
	Apart from giving an interesting tour of the Government's view this afternoon, the noble Lord, Lord Mandelson, also gave the Hugo Young lecture at Chatham House last week, which was quite widely trailed in the press. He gave an effective tour d'horizon of the issues facing the Government and the UK economy. As he touched on this afternoon, and as I am sure we are all interested to know, he has recognised that the crisis is not just affecting the banks. A significant crisis is now spreading down into British industry. We on these Benches welcome the Minister's statement that he does not believe that the Government should go back to the bad old days of 20 years ago in these circumstances, propping up failing companies with taxpayers' money. He has articulately set out the framework that the Government should follow in supporting British industry where it needs it.
	I have two or three questions on the structure through which the Government will provide assistance to businesses and companies. First, are the Government satisfied that the regional development agency structure is working as it ought, if that is the structure through which a lot of government money will be injected into business? Globally, the UK has many organisations that promote their particular brand of business and international trade—the UKTI, RDAs, chambers of commerce, English Partnerships, individual cities, the IOD, the CBI and trade associations. All have different stories and interests and, more importantly, seem to lack a common theme. I submit that RDAs are classic government quangos, duplicating councils, industry groups and the UKTI's efforts across vast regions of the UK. I would welcome the Government's comments on that.
	Secondly, I welcome the Minister's comments on help for SMEs. My party campaigned for an improvement to the small firms loan guarantee scheme which, for those of us who have experienced it, until this banking crisis seemed to produce significant bureaucratic delays among the banks in enabling individual SMEs to obtain the help that they needed. The jury is undoubtedly out as to the effectiveness of the Minister's proposals to which he has referred today.
	Thirdly, noble Lords would expect me, from these Benches, to touch upon the point of the noble Baroness, Lady Noakes, which was also the last Question before this debate: where do we stand on the euro? We can have a lot of political sport about this, but the Tories have of course always taken the view that we should not go into the euro because of a one-size-fits-all monetary policy. At the moment, however, we also have a one-size-fits-all monetary crisis. The real question for the Government is not whether it would have been better had we joined the euro one, two, three or five years ago—because we did not and therefore it is a futile question—but whether they feel that we are closer than we were a year ago to adopting the UK's policy with regard to going into it, as articulated by the noble Lord, Lord Myners. Do the Government have any timetable in mind with regard to seriously considering that question?
	We have already seen the impact on this House and, indeed, on the Government, of the actions of the Secretary of State. We have also seen the impact of the actions of the noble Lord, Lord Myners, with whom I first worked in another context more than 20 years ago. I dare to express two wishes before sitting down. First, is there not an argument for having Dr Cable as Chancellor of the Exchequer? Secondly, in looking forward to hearing the remarks of the noble Lord, Lord Bilimoria, who will follow me, can we have a pint of Cobra beer when he finishes?

Lord Bilimoria: My Lords, in the past decade Britain has experienced a period of remarkable uninterrupted economic growth. We have heard the successes trumpeted many times: low unemployment, low inflation and historically low interest rates. Mortgages were being offered at 125 per cent of a property's value, at six times an applicant's salary. Not surprisingly, house prices escalated, and many householders who had never considered buying a second home decided to take the plunge. Some invested in bricks and mortar because they could not rely on their private pensions; we all know why. Others bought and improved properties with the promise of easy profit. If Harold Macmillan had been alive to witness the past decade he might well have repeated those famous words, "You've never had it so good". Equally, however, being a wise man, he would definitely have asked: "Was this all too good to be true?". We now know the answer to that question. Like the most indulgent guest the morning after a lavish party, we as a nation have woken up with a horrifying hangover, hoping that we will get back to those happy days and the happy state we were in the night before.
	All of us, even the Prime Minister, now accept that economic cycles are an unfortunate reality and that, to use my previous analogy, all parties must come to an end. We saw that in the 1970s, we saw it in the 1980s, we saw it in the 1990s, and we are seeing it again today. However, despite this reality, I agree completely with the Secretary of State that it is the duty of Governments to ensure that these economic cycles are tempered as much as possible. As we have just seen, uncontrolled booms can be just as dangerous and damaging as busts, especially if those booms are fuelled—as they were in our case—by record levels of debt. I for one think that it is absolutely hypocritical to blame the Americans for the crisis we are in today. Britain's attitude towards debt in the past decade makes us guilty for the situation in which we find ourselves.
	I was pleased to hear in the gracious Speech that the overriding priority of Her Majesty's Government is to ensure stability in the British economy during this global economic downturn. Having started a business from scratch, I know from experience that what businesses desire more than anything else is stability. But business, which had a wonderful relationship with this Government before the current crisis, is now baffled. For example, the Government reduced capital gains tax from 40 per cent to 18 per cent. That should have been applauded as a wonderful move, but we were all surprised by the removal of the 10 per cent taper relief, almost doubling it to 18 per cent. Why did it happen? Because the hedge funds, for example, were misusing the taper relief provision. As a result, the small firms and entrepreneurs who benefited from taper relief were unfairly penalised. That is wrong.
	More recently, the Chancellor acknowledged in his Pre-Budget Report that raising corporation tax on small companies was not appropriate. But instead of abolishing this proposed increase, he has merely postponed it. Why? Because some individuals were using the small companies corporation tax to lower their own personal tax. It is the innocent SMEs that will pay the price, and that is wrong.
	In seeking to increase national insurance, the Government will increase not only personal taxation but the cost of employing people. Surely the Government should be doing everything they can to incentivise employers to take on more staff, not tax them more for doing so. That is wrong. And the proposed increase in the top rate of tax to 45 per cent has sent alarm bells ringing not just in the UK but around the world.
	On the other hand, the Government have magnanimously reduced VAT by 2.5 per cent, at an estimated cost of £12 billion. Surely that sum could have been better and much more effectively targeted by, for example, reducing income tax by a massive 4 per cent. Just as the Government want to prevent the systemic collapse of the banking system, they have a responsibility to prevent the systemic collapse of the SME sector. Only today, the Federation of Small Businesses revealed that 40 per cent of its member businesses said in a survey that they had already considered the possibility of closing down. I am talking about the Government supporting the 5 million SMEs and the 13 million people they employ and their families. The vast majority of SMEs have good business models but, sadly, because of a lack of finance in these awful times, far too many of these companies are being allowed to go to the wall.
	The Secretary of State mentioned the establishment of a small business finance scheme, to the tune of £1 billion. I have called many times in this House for the Government to increase multifold the small firm loan guarantee scheme, and yet the Government have come up with a £1 billion fund. Surely that is a drop in the ocean compared with the £700 billion package that is bailing out the banks and the financial sector. Moreover, it is my understanding that, as we heard, the Government have decided to deliver this £1 billion through the banks. But the reality is that the banks still are not lending.
	At a time when London is in danger of losing its position as the world's leading global financial centre and Britain's economy is being leapfrogged by that of France, it is more important than ever for the Government to create confidence in the business community. We have all read about the Prime Minister's moral compass, which directs the way in which he executes his public office, but where is the Government's financial compass? What guides them in their relationship with business?
	As we are descending into a spiral of almost self-fulfilling doom and gloom, should we be aspiring to revert back to where we were in the decade that I spoke about earlier? No, I do not think that we should be. We need a Government who support not just banks but businesses—which, after all, create the employment that pays the taxes that pay for the public services that we all benefit from. We need an economy that is less dependent on the housing market than on the strength of its skilled workers and the fruits of their productivity and on the strength of its businesses, especially its SMEs.
	We need an economy that is supported by sensible saving, sensible lending and sensible borrowing, where our banks and financial systems are supervised and regulated effectively—not with a heavy touch, not with a light touch, but with the right touch. Most importantly, we need an economy that is built on confidence—confidence in the consumer to spend, confidence in the banks to lend, and confidence in the Government, a Government who will always put business first.

Lord Rooker: My Lords, I declare my interest as a fellow of the Institution of Engineering and Technology and my role as a lay governor of Aston University. I want to say a few words about our role in using science and technology in the economy. I believe that there remains an anti-science and technology culture in the media and public life, which permeates our education system and into the schools. I acknowledge the efforts of many people to try to change that situation.
	Our nation is small relative to the emerging economies. Quantity will never be our unique selling point; quality will. So it makes sense to sell science and technology to our best brains and to get the discovery under way early in young minds. The Science Council's recent survey showed that of the 1,000 16 to 18 year-olds questioned, only 28 per cent saw science as relevant to their lives. Not only is this at variance with reality, but it means that many youngsters are cutting themselves off from exciting and lucrative careers in a range of industries—industries which they may not immediately be concerned with or connect to science and technology. Finance, fashion and sport all use science and technology.
	I should like to give three examples of how science and technology affects business and our economy. The first is fashion, which is of much interest to youngsters. A recent edition of the journal of the Institution of Engineering and Technology was devoted to "power dressing" or "haute-tech couture". Engineering companies and fashion houses are collaborating on wearable electronic garments that are as revolutionary as the first fob watch was 400 years ago. There are applications for such clothing in fashion, sports, medical and work wear. I shall highlight just two of the examples the journal gave.
	Rachel Bagley, a fashion design graduate from South East Essex College, created a collection to show how wearable electronics can contribute to reducing a wearer's carbon footprint by use of solar panels in dresses to power iPods and other devices. John Batchelor, at the University of Kent, has developed a circular antenna that looks like a button on a pair of jeans but which is designed to communicate in two modes—around the body and away to other devices. With touch panels integrated into sleeves in fully washable garments, the potential is very significant. Science and technology, fashion and clothing and fabric design is a hell of a mixture and incentive to offer our younger generations to get involved in business.
	My second example is from the world of motorsport. Unlike my noble friend Lord Drayson, I am just an interested anorak who, as an engineering apprentice in the 1950s and 1960s, had the odd fleeting dream as I read about Stirling Moss, Mike Hawthorn and the Marquis De Portago, but it went no further. Motorsport employs some 30,000 professional engineers in this country. In the past year I have visited McLaren and Honda. This very day last week I was at the Honda plant. Obviously the news from Honda is not good, and we hope that a new buyer will come forward to continue not only with the team but with its world-leading materials technology, which is vital to our business. The MoD might not tap into it, but I can assure noble Lords that US defence equipment manufacturers queue up to learn what UK motorsport is doing in materials technology.
	The land speed record for diesel cars is held by the UK's JCB Dieselmax, designed and engineered in Coventry by Visioneering. The engine was modified by Ricardo in Leamington and the gear box and transmission by Xtrac of Thatcham. The Motorsport Industry Association tells me that the sector is a hotbed of SMEs which average a couple of dozen employees and a turnover of some £4 million. They have an export level of 65 per cent and high R&D investment levels at 30 per cent, double that of pharmaceuticals.
	One of the SMEs I mentioned, Xtrac, is now the world's leading manufacturer of motor racing transmission solutions, supplying all levels of motorsport and, because of transfer technology, the aerospace and marine industries. Xtrac started from a shed in 1984 and now has sales of some £40 million. The majority of its engineering staff are bachelor or master-level graduates. The company has taken on three student engineers every year since 1998 and still commits 30 per cent of sales revenues to R&D.
	I should also like to highlight the world-acknowledged record in ultra-fast optical transmission technology and research achieved by the Photonics Research Group at Aston University. It is one of the largest such groups in the UK and is working to exploit new fibre-optic technology for business which I saw on a recent tour of the labs. My noble friend Lord Drayson, who is also an ex-Aston graduate, was there. We saw, for example, tiny single-fibre sensors the size of a hair that are embedded for a lifetime in structures such as aircraft and bridges, replacing the old, worn-out and unreliable technology of the conventional electrical strain gauges. The value of pinpoint and accurate pressure readings for economic and safety purposes is self-evident. A large patent portfolio has already led to the formation of several start-up companies. Partners among the big players are National Grid, BP, the US Air Force, the MoD and Tarmac.
	We are undertaking a technical adjustment of our economy on a fairly grand scale. I am not saying that this readjustment is only on the margins but we can, I hope, manage it so that to a large extent we are in control. This is the very time to push on with investing in research in these areas. As I said, quantity will never be our USP but quality will and, if we can get a grip on exploiting these new technologies and in due course take a world lead in that regard, in the current economic situation that has to be a good investment from the point of view of both the public and private sectors.
	Having lectured the House over the past seven years, I am very conscious that with the Clock showing six minutes, I am into the seventh minute and therefore my time is up. However, as I make what is in effect my maiden Back-Bench speech in your Lordships' House after seven and a half years of membership, it would be remiss of me if I did not say thank you for all the support, and indeed scrutiny, that I have experienced in four different ministries. I also appreciate the support that I received when I was regulating the House as deputy to my noble friend Lady Amos after 2005. That regulation was not easy—indeed, sometimes it was hard—but I hope that it was fair. Nevertheless, it could not have been done without the support of the House, and for that I am extremely grateful.

Lord Wakeham: My Lords, the noble Lord, Lord Rooker, and I entered the House of Commons on exactly the same day and I have heard him speak on many subjects over many years. I have never yet heard him make a boring speech, and that one certainly was not either.
	It is very nearly 50 years since I started my own business. Looking back to my experiences in those early years, I can see that some of the problems that I had then are being repeated now. When I started 50 years ago, I did not go around telling everyone that I was a small business. In fact, I did everything that I could to disguise the fact and to try to build the business up so that I did not have to call it small. However, back then we did not have a Government who wanted, as the noble Lord said, to put up corporation tax for small businesses to a level above what they would have paid if they had already been successful.
	The rate of interest that I paid was extremely important—and the lower the better—but it was not nearly as important as the ability to get finance. When I ran a business, the question of whether I invested in a project did not depend on 1 or 2 per cent of interest on the margins, because it was not possible to judge matters that closely. If things were that close, I was certainly wise not to get into a project, and I did not. The important thing was getting finance to establish my business. That was far more important to me than the rate of interest, although of course I should have liked it to be as low as possible. I had other costs that were infinitely more important than the interest that I paid to the banks. For example, wages featured as a much higher figure in my accounts than the amount of interest that I paid, and those wages depended substantially on the rate of inflation in this country.
	Only two months ago, we were worried about the serious impact of inflation and now we are talking about deflation. With all the things that are going on, we could easily, and quickly, go back to having problems with inflation. The Government need to be very careful that that does not suddenly happen, as it would be disastrous. As a matter of fact, for small businesses deflation is just as serious a problem as inflation because of the way that it slows down demand. Both inflation and deflation are dangerous for small businesses, and we need a Government who can maintain an acceptable level.
	As I said, the availability of bank finance was then and is now very important. The banks have now invested in a whole range of assets which have been disastrous to say the least. It should be said clearly that no one instructed them to invest in those assets. They invested in them because they thought they wanted to, and they have a very big measure of responsibility for that. So, too, does the regulatory system. It is a government responsibility and they have a measure of responsibility for the difficulty of the banks to find the finance they need.
	The problems are large and the Secretary of State touched on some of them. The auditors have difficulty in valuing some of the assets as the conventions that are now used, such as mark to market, mark to model and all sorts of other things, are complicated. Most of the non-executive directors of the banks would find it very difficult to understand exactly what was going on. I am not saying that these methods are intrinsically wrong but they are so complicated and sophisticated that it is hard to see how they could be the right way forward. If the directors and those who control the institutions cannot fully understand them, the regulators have a responsibility to try to discourage this sort of investment.
	I do not think that that necessarily requires a great deal more regulation, but it requires much more supervision and understanding by the regulators of exactly what has been going on to make sure that we avoid it in the future. The Government would be wise to look again at the tripartite system of control of the banks as I am not satisfied that that is the best system to deliver what it should. I would prefer it to be under the Bank of England but I recognise that the noble Lord, Lord Turner, who was a member of the Economic Affairs Select Committee, which I had the honour to chair for a number of years, is an outstanding man. I would not want to say anything that indicated that I did not have a great deal of confidence in his ability.
	Some of the Government's measures have been helpful but some less so. We have to get the banking system working again. The present situation is not helped by press briefings blaming the banks for all the difficulties. They have their share of responsibilities but so do others. I hope that the private meetings that the Minister is having with the banks are on a more mature level than some of the comments I have seen in the papers.
	The banks' cost of capital is miles higher than the bank rate. They have to repair their balance sheets by paying the Government—or the taxpayer—12 per cent on the £37 billion of our money that has been put in. Rightly they should, but the idea that the bank rate reductions can be immediately passed on does not seem realistic. The FSA wants them to hold more government bonds to put themselves on a more secure footing. That cannot be a disappointment to the Government because they will have the dickens of a lot of bonds to sell in the next few years. They are required to run sensible businesses in a commercially difficult time. I want a return to confidence because that is the only way forward, but it would be foolish to think that that can happen as quickly as some would like.

Lord Oakeshott of Seagrove Bay: My Lords, I am afraid that I cannot compete with the noble Lord, Lord Wakeham. I started my own business only 23 years ago, but he is absolutely right that for a viable business the availability of finance matters much more than a percentage or two on the price.
	Today the laws of the principles of economics are lost in a fog of fear. Unless we can rebuild credit and confidence, economies are almost unmanageable. I shall focus on banks—Irish and Icelandic—and the British Post Office.
	However, I start by paying tribute to the noble Lord, Lord Mandelson, for grasping much more quickly than the amateurs in the Treasury how shocking it is that the banks have virtually gone on strike in recent weeks. He has been speaking about small and medium-sized enterprises, as have we, but will he and the Treasury now get to grips with the real dagger pointing at the heart of the British economy, which is the banks' failure to lend to big businesses as well? That is where the greatest risk is. Private equity-backed companies with millions of jobs are in great danger of going down next year, and we need to focus on lending to big business too.
	I got really worried about Iceland six months ago when I looked hard at what the markets were telling me. Credit agencies were slow to pick up the problem, but the credit default swap prices were shouting from the rooftops that Icelandic banks were in trouble. They were signalling a 40 per cent chance that they would go bust. I raised my concerns in Parliament in the summer with Questions about the Icelandic compensation scheme and British, not Icelandic, regulation of these banks, which were taking billions of pounds of British money. I am sorry to the see that the noble Lord, Lord Myners, is not in his place, but perhaps his officials will pass this on to him. As we now know, despite the disgracefully evasive and misleading Answers I got from the Treasury on 14 and 15 July, those banks were well past saving. We know that from the leaks that have come out from the Treasury, our financial authorities and the IMF. They already knew that in the spring. However, if the Treasury had given me straight Answers to my Questions, at least savers in Icesave—individuals, charities and public bodies—would have had on the parliamentary record the facts about the risks they were running and the parlous state of the Icelandic scheme, and they might well not have gone on pouring hundreds of millions of pounds more into Icelandic banks right up to the moment in October when they hit the wall.
	There are some worrying parallels between Iceland and Ireland. Of course, Ireland is not a financial basket-case like Iceland, but its banks are in dire straits and the fact that on 30 September the Irish Government, like the Government of Greece, felt forced to guarantee all deposits is a sign of weakness, not strength. Ireland is a small country with a very large financial sector. It promotes itself as a low-tax zone off north-west Europe, a kind of Cayman Islands in a cold climate, and aggressively chases footloose financiers and less scrupulous British companies to move to Dublin to dodge tax. British taxpayers suffer twice from that because it also makes it much more difficult for our Revenue and Customs to make British-based multinationals pay their fair share. Dublin does not need to be Liechtenstein on the Liffey. If you set out to attract mobile money from around the world, you run much bigger risks when things go wrong.
	British banks have been lending far too much on property. Many of their loans will be underwater already. Noble Lords may have seen the Royal Institution of Chartered Surveyors's wholly realistic forecast that British commercial property prices are likely to fall by a half from their peak to their trough. Any property professional will tell you that while British banks have been foolish, Irish banks have been mad. They have been betting on property here like a party of punters on Gold Cup day at Cheltenham. British taxpayers must not pay or underwrite their bookies' bills. We need every penny to get banks lending again to British businesses and British families.
	Let me give the House a couple of recent examples. A surveyor I have done business with for 20 years was last week asked to value a flat development in a northern city. One of the big three Irish banks had lent £16 million against a valuation of £20 million last year. There is no income from the site and no demand for flats. I asked, "What's it worth today? Five million perhaps?". "Three million," said the surveyor. Another trusted contact of mine has just been instructed by a receiver to take on the management of a portfolio of multilet offices all over Britain that was bought by an overseas private investor for £600 million with a £500 million loan from another of the big three Irish banks. The owner has now done a runner, the rents have not been collected for many months and the properties are worth £300 million at best. It is no surprise that the markets are pricing in an 18 per cent chance of the Bank of Ireland defaulting on its obligations over the next five years and a 28 per cent chance for Anglo Irish Bank. Those are not Icelandic levels, but they are still far too high for comfort.
	In times of unprecedented economic turbulence, as the noble Lord, Lord Mandelson, so aptly put it, would it not be safest for the British Post Office, whose the main savings account is operated by the Bank of Ireland, instead to team up with the strongest possible partner to protect British savers' money and develop its business? That can mean only National Savings & Investments, the nationalised Bradford & Bingley and Northern Rock, or Britain's big high-street banks and building societies.
	I keep my own cash on deposit in sterling in the HSBC and the Bank of Scotland—more than £50,000 in each, actually—and I have not had a moment's worry. To put it at its simplest, the Bank of Scotland is as safe as the Bank of England; the Bank of Ireland is not.

The Lord Bishop of Durham: My Lords, I was pleased to see in the gracious Speech the promise that the Government,
	"will work for a co-ordinated international response to the global downturn".
	I am slightly surprised that I am the first to pick up this theme of the economic statements in the gracious Speech.
	We urgently need to rethink the structures of our global economy. The unintended consequences of the 1944 Bretton Woods agreement include the tilting of the global economy to benefit rich nations, and several of the poorest countries in particular still face massive spiralling debt. Since a country cannot declare itself bankrupt and start over, it is compelled to prioritise debt-serving ahead of healthcare, clean water, education and so on.
	At the recent Lambeth Conference, I was privileged to meet bishops from Tanzania who spoke of the dramatic effect of the debt remission that was granted to that country a few years ago. Other countries have also benefited enormously, but a huge task remains. More than $400 billion of debt still needs to be cancelled, most of which will be taken up by 100 per cent relief for the very poorest countries. Debt in Bangladesh stands at $19 billion, and repayments are higher than the annual health budget. Yet Bangladesh is one of the countries most at risk from climate change, and about 40 per cent of the population lives on less than $1 a day.
	Or take the Philippines. Most of its $28 billion of debt was incurred under the Marcos dictatorship. The country has already paid five times that amount. Even so, the compound interest has ballooned the debt to more than £60 billion. The result is that one child in 10 suffers from malnutrition and one person in five has no access to clean water. Those two figures stand for many more around the world. All this is miles away from the noble vision articulated by Gordon Brown, speaking in St Paul's Cathedral in March 1999. He said:
	"Poor country debt is the great moral issue of our day, the greatest single cause of poverty and injustice across the earth ... We must drop the debt and drop it now".
	That agenda was then endorsed by the then Leader of the Opposition, the right honourable William Hague.
	Whenever I and others have spoken about these things in the past 10 years or so, we have faced a chorus of excuses and been told that we do not understand how the world works, that people who borrow money must learn that they have to pay it back, or that the borrowers were wicked, irresponsible or incompetent, and that any debt relief will only be siphoned off to fund yet more extravagance on the part of the few. Recent events have blown that excuse right out of the water. Governments, including our own, are, as we know, bailing out banks. At least one bank is being refloated in such a way as to continue unchecked, with large bonuses and shareholder payouts. The American Government are bailing out car manufacturers with loans taken from funds that have been allocated for ecologically significant design improvements. The very rich are doing for the very rich what they have refused to do for the very poor. If the promises in the gracious Speech are to be fulfilled, these global issues must be addressed as a matter of first priority.
	We should not be aiming to return to business as usual, as some phrases in the Front-Bench speeches might have implied. It is business as usual that has got us into this mess. We need a paradigm shift. We cannot simply return to the old mixed economy, balancing the rampant follies of the so-called free market with appropriate government ownership and intervention; we have to address the underlying issues. Behind the sudden new squeals for help from the very rich, we must listen to the long-term cries from the very poor. My colleagues and I intend to continue our work with bankers and economists to shape and develop a future global economic order in which all may genuinely benefit. When I say "all", I think of the people I work with day-by-day in the north-east of England. In the strong opening paragraphs of the gracious Speech, the Government promised to address local issues facing families and businesses.
	Ten days ago, I hosted a meeting of business leaders from across the north-east. The message came through loud and clear from speaker after speaker that the banking model we have worked with recently is flawed and needs to change. Bailing out the banks will not do any good unless the system is radically reformed. The massive over-regulation, which tries to diminish risk-taking in some areas and which is a standing joke among struggling small businesses, now appears as a displacement activity for the massive deregulation which has encouraged astonishing irresponsibility and inappropriate risk-taking in the financial sector.
	That said, I am hearing two different messages around the north-east right now. On the one hand, the recent steady economic improvement has been good and diverse. Some, previously redundant, have found new work. We have a traditional low-spending population, so when money is tight, we do not see a drastic change in spending patterns. The manufacturing members of the North East Chamber of Commerce, particularly in the Tees Valley, are markedly more positive than other parts of the business community. However, unemployment has gone up to 8 per cent, the highest in the country. There have been significant job losses, even in thriving companies like GlaxoSmithKline in Barnard Castle. Our many small and medium-sized enterprises are particularly vulnerable to sudden, economic swings. I take the point of the noble Lord, Lord Mandelson, about the raising of the threshold for rates on empty properties, but the North East Chamber of Commerce is insisting that this does not actually address what it really needs to in that area. In larger businesses, we are seeing a slowdown in production; for example, the forthcoming extended Christmas closure period at the Nissan plant in Sunderland. Parish clergy across the diocese tell me that many people are living on a knife edge, barely able to make ends meet. Not for the first time, many in the north-east ask themselves whether they have fallen off the map, especially following the Northern Rock debacle which hit hard at many north-eastern charities previously supported by the Rock.
	Meanwhile, we in the churches remain committed to working on the aims highlighted in the gracious Speech through local partnerships at every level. Churches are distributing food and running small credit unions. Churches can often give a lead in helping to identify to social services those most at risk. In addition, though voluntary agencies are themselves at risk when money is tight, we can still help provide voluntary work for the unemployed, particularly young people, so that they can develop skills and retain a sense of self-worth. We are actively involved in helping local communities to think creatively about our medium and long-term aims and how to prepare for them. The churches can take a small but significant lead in helping maintain and restore morale and thus assist in the objectives outlined in the gracious Speech. I hope in years to come that we look back to this moment, not as a disaster followed by a muddle, but as a time of fresh vision and bold action which made a real, lasting difference both globally and locally.

Lord Bhattacharyya: My Lords, the gracious Speech made it clear that the economy is the overriding priority for the Government. I declare an interest as a professor of manufacturing, a vital area of the economy. Hence, I shall concentrate entirely on manufacturing and in our ability to compete both during and after the crisis. In the early 1970s, manufacturing represented 32 per cent of the British economy. Today, it is around 13 per cent. We are all familiar with the life support culture, inefficiency, lack of investment, industrial strife, poor management and product starvation that plagued British manufacturing in the 1970s and 1980s. After those scarring experiences in the 1980s and 1990s, policy was to allow the market to run its course; that is, do nothing. As a result, we now have a smaller but leaner and more productive manufacturing sector. Obviously, this has been helped by a spectacular growth in inward investment. Today, the manufacturing sector employs 3 million people across the UK and a quarter of British exports are in the high-technology sector, a higher proportion than France, Germany and the USA. A company like Land Rover, not so far away from my university, invests nearly £400 million a year in research and development in Britain, totally different from what it was in the 1970s, 80s and 90s, and until recently this was highly profitable. In sector after sector, British manufacturing has transformed itself from being an economic burden to becoming a calling card to the world. It is vital that manufacturing continues to prosper. Our Government have recognised that. The recent Manufacturing Strategy Review led by my noble friend Lady Vadera has been very welcome.
	Today, manufacturing faces severe challenges as a result of the financial crisis. We must act swiftly so that the cost of failed speculation is not a loss of vital innovation. My noble friend Lord Mandelson has recognised that many sectors need short-term help because of the global downturn. I agree that that will need some industrial activism. We need the best brains to carry out research so that we can ease the process of attracting qualified people to the UK from all over the world. Crucially, we need to invest in engineering and technology research and skills. A co-ordinated approach to research has worked extremely well in the life sciences and the biotechnology sectors. Public investment and charitable funding of more than £2 billion a year has worked wonders for our pharmaceutical industry, which now employs 70,000 people and has a turnover of more than £50 billion. That should be applauded.
	However, we know that engineering and technology research funding is only one quarter of that sum. Engineering and technology, which is a much larger sector of the economy, needs the same approach in funding and skills as life sciences. This will require co-ordination between bodies such as the EPSRC, the Technology Strategy Board and the RDAs. These agencies must have a symbiotic relationship with industry to ensure a critical mass of innovation. Advantage West Midlands is actively pursuing this. Only businesses which fund innovation will have new products to offer when consumer confidence returns, and good products and good margins decide the fate of companies.
	Britain is a relatively small country. In a globally competitive environment, we must export and we must ensure that we always have a world-class product base. The Government have set out the areas in which we as a nation need to innovate. These priorities are where we should work with businesses to achieve practical applications of engineering and technology. We must enact an integrated innovation strategy. By 2011, we will spend almost £4 billion a year on scientific research. We must focus some of those resources on what President-elect Obama called "building the ecology of innovation". The President-elect is concerned about the future of the product base in America. We should be just as concerned in the UK.
	The Technology Strategy Board supports applied research, but its total budget is less than one-tenth of that of the research councils. Today, funding still has an overwhelming bias to pure science, a phrase that suggests a false divide between research and application. We must develop applied research plans for sectors such as energy, environment, computer security and so forth. We should reach out to businesses and not always expect them to take the lead in applied research in difficult economic times. We must try to reduce the bureaucracy in government departments, which stifles innovation with too long a response time. The tradition of scientific research in the UK is brilliant. It is also long-term and blue sky. But the recent calls from the biotech sector for immediate financial support shows that the supposed conflict between short-term support and long-term investment in R&D is a fallacy. We need both to succeed.
	In the past 20 years, we have built efficient, flexible and innovative manufacturing businesses in sectors as varied as aerospace, pharmaceuticals and automotives. These companies have "fixed their roofs", so to speak. Now it is not the roof but the foundation of future growth that has been shaken by the recent crisis. Today, the problems of the financial sector mean that a short-term rebalancing of the economy is inevitable. I am sure that the Government will take action to fix that. But we need to pay attention to the drivers of long-term growth, as well as short-term life support. Successful businesses need our help to make Britain fit for the future. It is vital that we support them in that endeavour.

Lord MacGregor of Pulham Market: My Lords, in the short time available to speak I want to confine myself to three issues, and I take as my text for the first two Mervyn King's comment to the Treasury Select Committee on 25 November that,
	"the single most pressing challenge ... is to get the banking system lending in any normal sense".
	In other words, and here I follow the comments of my noble friend Lord Wakeham, the shortage of bank lending is now one of the most important problems we face. Indeed, the governor seems to think that it is the most important problem facing the economy. Three days later the CBI reported that some 40 per cent of firms have had their credit facilities reduced or withdrawn. Everything I hear in business and financial circles confirms this, and here I confirm my interest as recorded in the Register as a member of the supervisory board of DAF Trucks and chairman of the pension funds. Let me say also in passing that the reduction in VAT at a cost over two years of £12.5 billion, when prices are coming down by often more than that, seems a very poorly directed public financial decision.
	My first point concerns small and medium-sized enterprises. The Government have announced a new small business finance scheme to support up to £1 billion-worth of bank lending. The Secretary of State—the noble Lord, Lord Mandelson—and the noble Lord, Lord Bilimoria, cited the recent survey undertaken by the Federation of Small Businesses, which I have with me. Two points that were not mentioned are that when small businesses were asked how they felt about the financial prospects of their businesses following the Pre-Budget Report, 58 per cent were significantly or somewhat less optimistic compared with only 6 per cent that were optimistic. Further, in response to being asked whether they had seen an increase in the cost of existing finances in the past two months, 30 per cent said yes, and I am told that the percentage increases with every new survey. In response to being asked whether they have seen an increase in the overall cost of new credit in the past two months, again 30 per cent said yes.
	I was the Minister for small business in 1981 who introduced the loan guarantee scheme, and I was delighted to learn from many small businesses subsequently that it had helped them to get off the ground. We have garnered much experience over the years on how to build on and extend that type of scheme in the current crisis. The Federation of Small Businesses has put forward its proposals and discussed them with the Government and the major banks, but I understand that it is not likely that the new small business finance scheme will be implemented until the end of the January. My first point is this: is there any good reason why the scheme could not be introduced at the latest by 1 January 2009 because it is so urgent? Can the Minister tell us in his reply why the earlier date cannot be achieved, or better still, say that it will be?
	My second point concerns large and medium-sized major corporates—that is, those not classified as SMEs. I want to elaborate on the point made briefly by the noble Lord, Lord Oakeshott. So far everything has been concentrated on, and until recently most media comments have been on, homeowners and SMEs. Little mention has been made of the need to focus on the problems of large companies, on which smaller companies so frequently depend, and of the potentially huge unemployment consequences from that sector. Everything I hear confirms that where facilities even for the most highly rated and creditworthy companies are being renewed, it is often at much higher margins over LIBOR and with substantial fees up front. Where new facilities are sought, again even from highly creditworthy companies, the margins and fees are also much higher, if they can be offered at all. Many banks are simply saying that they will not provide them. However critical one may be of the previous mismanagement and errors of the banks, one has to recognise that they are taking commercial decisions as they see them to improve their margins and strengthen their balance sheets. I am told that most banks are looking at the end of the year and trying to get them into the best possible shape. Does that lead to the suggestion that the situation might be a lot better after the end of the year? I suspect not.
	I am not sure that the call of the Prime Minister, the Chancellor and others for lending rates to follow down to base rate will have much effect. Indeed, when setting out the principles for the UKFI, the new company set up to manage the Government's investments in the banks, the Chancellor said that one of them would be to respect the commercial decisions of the financial institutions. Therefore, I follow the noble Lord, Lord Razzall, in saying that I would be interested to hear how the Minister will deal with this major challenge. So far, it ain't working.
	One suggestion put to me, and one I believe that the car manufacturers hinted at during their recent meeting with the Secretary of State, is something I raised in the last debate we had on these issues. I mentioned the possibility of introducing a commercial paper funding facility similar to that which the Federal Reserve Bank of New York introduced in the US at the end of October, purchasing highly rated US dollar three-month unsecured and asset-backed commercial paper via eligible primary dealers. In the letter which the noble Baroness, Lady Vadera, sent today to my noble friend Lady Noakes, she said,
	"in the UK the approach to date has been to tackle the current problems by taking action on bank solvency ... As part of this we have introduced a Credit Guarantee Scheme to facilitate lending to banks. The Scheme assists banks to issue new debt including commercial paper by providing assurance to investors, so in some aspect it is not dissimilar to the CPFF".
	My response to that is, first, that the Federal Reserve already had in place facilities similar to the Government's credit guarantee scheme but found it necessary to introduce the new one subsequently. Secondly, although by no means a bank replacement for the credit guarantee scheme, it would add to it by enabling companies, as distinct from bank lending, to take advantage of it. It would help to free up more bank lending and thus, for appropriate companies, make a contribution to what the governor has called the country's most pressing problem.
	My final point refers to savers and the pension funds. We have heard a great deal about the plight of borrowers but the other side of the coin, which is now being noticed, is the plight of savings and, not least, its effect on pensioners. When the savings ratio is at an all time low, it discourages savers even more. It is ironic to hear some critics saying, "If only the banks and building societies would lend more of their money", when it is, of course, their savers' moneys that they are lending, They need to keep attracting savings, and that is another reason why the banks will not simply come down to base rate. Many pensioners with modest lifetime savings are very worried about making ends meet. Ultimately, it is a question of balance. We should learn from Japan the lessons of a decade of nil or almost nil interest rates and that other side of the coin needs to be expressed.
	We have spoken endlessly in this House about the decline of pension funds and the part-government responsibility for that. We are now coming into a new danger in that, with the drop in asset values, many pension funds will have a deficit much larger than at the 2007 valuation or even their valuation today. I hope the regulator, as I think he has already indicated, will be sensible and cautious about putting too many pressures on pension funds to deal with a short-term problem in regard to deficit recovery plans, which would make the long-term issues for pension funds even worse.

Lord Skidelsky: My Lords, the opening paragraph of the gracious Speech pledges the Government to give overwhelming priority to ensure the stability of the British economy during the global economic downturn. We would all endorse that.
	The Minister outlined several useful measures that the Government have taken or are planning to take, which remind me of the useful measures taken by Ramsay MacDonald's Labour Government of 1929 to 1931, about which I wrote my first book, but which were far too small to stem the economic blizzard that was then sweeping the world.
	The gracious Speech promised reforms to the banking sector. These are necessary, but here I sound my first cautionary note. In his open letter to President Roosevelt in 1933, John Maynard Keynes said that the President was engaged in,
	"the double business of recovery and reform—recovery from the slump, and the passage of those business and social reforms which are long overdue".
	But—and here is the sting—he said that,
	"even wise and necessary reform may ... impede and complicate recovery. For it will upset the confidence of the business world ... And it will confuse the thought and aim of yourself and your Administration by giving you too much to think about all at once".
	In other words, Keynes's advice was: "Concentrate on getting the recovery and do your reforms on the back of the recovery". Those wise words have lost none of their relevance.
	How much stimulus will it take to bring about recovery and how is it to be done? There is no doubt that we are sliding into a severe recession, possibly the worst since the war. The latest OECD economic outlook projects a swing in output of about 4 per cent of GDP for OECD countries as a whole, with a decline of 3 per cent or more in the next 12 months. We should notice that these forecasts are lagging indicators; the output figures have had to be revised downwards each quarter for the last three quarters.
	Some believe that we can deal with the problem by relying on monetary policy alone, but I do not think that it will do the job. I shall again quote from Keynes. In a lecture that he gave in 1932, he said:
	"It may still be the case, that the lender, with his confidence shattered by his experience, will continue to ask for new enterprise rates of interest which the borrower cannot expect to earn ... If this proves to be so, there will be no means of escape from prolonged and perhaps interminable depression except by direct state intervention to promote and subsidise new investment".
	That reminds us that getting the money to flow is a two-way business. It depends on the expected earnings of the borrowers as well as on the price and quantity of money provided by the lender. A great deal of investment will inevitably be delayed until profit expectations rise, whatever the rate of interest. I think that the Secretary of State indicated the importance of the expectations of the borrower.
	The Bank of England's base rate has come down to 2 per cent; mortgages are stuck at 5 to 6 per cent. Everyone from the Prime Minister downwards is telling the banks that they have to lend, but they will not lend until it is prudent for them to do so for two reasons: first, they fear more losses ahead from toxic assets or recession-induced business failures; and, secondly, the new capital put in by the Government is at such penal rates that they want to repay it as quickly as possible, the easiest way being to stop lending. This flight into cash is a familiar feature of all downturns. It gives people a sense of security. Cash postpones the decision that you have to make to spend. Even a relatively weak currency such as the dollar may at moments of high pessimism seem more secure than any other asset, as we are seeing at the moment.
	That leaves fiscal policy. It would have been better had we been able to start the fiscal stimulus from a position of surplus, but, still, this weapon will certainly be needed. If the output gap figures are right, it will have to be more than the 1 or even 2 per cent of GDP that has so far been suggested; it will perhaps have to more like 3 to 4 per cent of GDP.
	In devising this fiscal stimulus, I would certainly put my main emphasis on government spending. When private sector spending falls, the only secure way to get increased spending is for the Government to spend the money themselves. Many projects in the pipeline can be accelerated. I have only one suggestion: will the Government not consider suspending for one year the most important planning regulations that hold up the start of big projects? Many of them are based on worst-case scenarios; now we have a worst case of a graver kind, which should take priority.
	That we will come through the crisis I have no doubt. We will need to think seriously and constructively about the kind of political economy with which we wish to emerge at the end of it. I shall make just four short points. First, we need to revise macro policy to be able to take into account asset bubbles and to make use of macro-prudential instruments. Secondly, we need to strengthen banking regulation on an international basis. Thirdly, we need a way of liquidating the huge global imbalances that have been a major cause of financial excess in America. That means talking about exchange rates. We cannot avoid that; it is an essential part of a Bretton Woods 2. Finally, we need to consider whether, as a society, we want to tolerate the extreme inequalities of wealth and income that have built up over the last 20 years, especially at the very top. The emergence of an insolent, largely footloose, financial aristocracy—or, I should say, plutocracy—is the direct result of the dominance of the financial services sector in our economy, the freeing of capital movements from national control and a reversal of the previously equalising tax policies in the Reagan and Thatcher years. A big crisis gives us the opportunity to consider that. But first the recovery.

Lord Thomas of Macclesfield: My Lords, this is the first time that I have spoken in public since my severe stroke in 1999. It was only the brilliance of the National Health Service over nine years and the care of my wife over the same period that have allowed me to be here today or any other day.
	I would like to take noble Lords back to the early 1980s, as all major disasters have a long track record. At that time I was trying to launch a trade union bank. This was the time when we were told that there was no such thing as society. There was media reference to enemies within. It was during the height of power of Margaret Thatcher's regime and the unpopularity of the trade union movement.
	The supervisory department of the Bank of England was very efficient and demanding in order to ensure that a new bank met all the requirements properly demanded by law. In fact, it gave me a book on the subject. Eventually, I, as a controller, received the licence from the Bank of England and the bank has prospered ever since, making profits of £5 million in each of the last two years; I understand that the profits continue today. However, although I also attended 10 Downing Street and was seen by a very senior civil servant, the procedure was never foolproof, as a new bank launched at the same time, named after the famous capitalist Adam Smith, failed within some three years.
	At the same time I had executive responsibility for group development of the Co-operative Bank, where such building societies as Abbey National and Nationwide, among many others, were our customers. I knew their executives and many board members. I was on record, on television and radio, morning and evening, saying that the privatisation of building societies, moving from being a mutual to a plc, was obscene—that was the word that I used—particularly the possible pay-off to existing members and executives. My argument was, first, about the unfairness of funds built up over generations being distributed to existing members and executives. If it was so good, why had it not been done after the First World War, the great depression or the Second World War? Secondly, the ethos of building societies and their customers was to save before borrowing and this discipline would be lost. Indeed, it has been lost. I was confident because, on my own recent experience, I knew that they would have difficulty in becoming banks, as few were managed by qualified bankers and their business models were perhaps not appropriate for a fully fledged bank.
	At this time the Bank of England was the responsibility of a member of the Cabinet. During this period, the executives of those mutuals who would be eligible for a financial reward if the vote was in favour of privatisation were successful. All these building societies were converted and only a few executives that were against privatisation won their case with their members. Societies such as Nationwide and a handful of others survived. Today there are few survivors from those that chose the plc route, whereas many mutuals have survived and operate today.
	Then, to my amazement, the same supervisory department at the Bank of England allowed those building societies to become banks. We should not blame the people in 1997, as the decision had been made in the 1980s. It is not for me to speculate as to which political decisions were made at that time, but something fundamental must have happened between the time—only a few months earlier—when I had applied for a licence and when the building societies were let through the same net. No central banker worth his salt would have ever licensed a bank that was going to rely partly on wholesale funds, which some clearly did and do.
	The subsequent worst offender was the arrogant Halifax, which, when I last saw the figures, had a mortgage book twice as large as its personal customer funds, so was entirely dependent on wholesale funds, whereas its mortgage book should have been restricted to its customer deposits, plus capital and reserves. This phenomenon was driven by its executive rewards for more and more new mortgages. We were not the first. President Reagan did it first by changing savings and loans into banks although, at the same time, they were heavily involved in fraud. It seems that nothing changes.
	The media have been full of the pressure to reduce lending rates but, in my experience, it is more important to concentrate on the savings rates, as there are more savers than borrowers. The banks have too long ignored that fact, which is what led to the need to use and be dependent on wholesale moneys, with all the problems that that has caused.
	Most people—and, strangely, many bankers—do not realise that, unlike for all other companies, the first responsibility for bankers is to their depositors and not their shareholders. Banks were recently offering 6.25 per cent for deposits, so their average cost of money would be around 4 per cent and lending to the corporate sector with the current economic situation would be a minimum of 9 per cent. The base rate at 2 per cent is largely irrelevant, because you set the lending rate in relation to your average cost of funds; if banks are borrowing wholesale money at 7 per cent or more, the situation is even worse. Gordon and Alistair have done a good job in saving customer deposits—just imagine if we had all lost our deposits—and trying to finance more expenditure from people who are feeling the pinch just to survive, but they have yet to finish the job.
	What is now required is legislation to instruct banks to reduce their exposure to mortgage lending to a lower sum than their personal deposits and no longer to finance their mortgage lending with wholesale moneys—in fact, to return to being like building societies. Wholesale funds were only ever appropriate for corporate customers, never for personal customers. To do this, banks must be compelled to lower their exposure to mortgage lending by selling their overexposure to this market now. This is the fundamental error of judgment, which has taken nearly 30 years to eventually generate these problems.

Baroness O'Cathain: My Lords, the two opening sentences in the gracious Speech emphasised the overriding priority of ensuring,
	"the stability of the British economy during the global economic downturn",
	and that the,
	"Government is committed to helping families and businesses through difficult times".
	So many times in the past I have spoken in your Lordships' House in support of families, and it is good to see that they are given such priority here. Sadly, however, it is not just families and businesses that are suffering from the downturn, and from the Government's mismanagement of the economy over the years, which has left us so ill-equipped to deal with the downturn. What about the pensioners? My noble friend Lord MacGregor has already mentioned this, but he is the only person in the debate so far to do so.
	For pensioners, there is not a single crumb of comfort in the gracious Speech. They are from that generation who subscribed to prudence and saved and who are now genuinely terrified of what the future holds for them. I have gone through the gracious Speech again, paragraph by paragraph, hunting for just something that might give pensioners just the smallest whiff of hope that this Government are remotely interested in, or concerned for, them. I cannot find a single word. I suppose, on reflection, that I was stupid even to hope that there might be one. Ever since this Government took office on the "Cool Britannia" ticket, lauding pop stars and other young celebrities, the pensioners have become more and more ignored.
	Let us not forget the raid on the pension funds—conservatively, with a small c, estimated to have taken more that £200 billion from pensioners. Of course, in view of the incredible waste of public funds over the past 11 years, that probably seems a pittance, but the effect of that pittance has been that our state pension is now one of the lowest in the developed world. This is an absolute shame. I hope that the Minister will address this issue in his summing up.
	That brings me to the Government's increasing tendency to avoid answering difficult questions. With one or two notable exceptions, Back-Benchers can resign themselves to the certain knowledge that holding the Government to account is becoming very difficult. In the debate on the economy on 3 November, many questions were asked, but how many were answered? Or, to be fair, how many have been answered since? Am I the only person whose work in that debate was not given the courtesy even of one question being answered? I think not.
	Pensioners are being given the same brush-off. They are still licking their wounds from the year when the Prime Minister—then Chancellor of the Exchequer—awarded them a 10p increase. How disgraceful. I ask the Minister: is there another plan to squeeze more out of pensioners? And what comfort will the Government give to those who have spent their working lives not only contributing to their ultimate state pension but also saving for a rainy day, which is what the great majority of that generation did?
	I turn to saving. We are encouraged to save, but can somebody tell me how? There is a sentence in the gracious Speech that is intended to encourage saving, telling us that the Government will,
	"bring forward proposals to create Saving Gateway Accounts to encourage people on lower incomes to save more by offering financial incentives".
	What about offering financial incentives to pensioners to compensate for the raid on their pensions; for the fall in value of their contributory pensions resulting from the catastrophic fall in stock markets; and for the impact on their pensions of the maximum 1 per cent interest that they will get on their cash savings, when inflation is at least 4 per cent? What sort of example is that to encourage the younger generation to save?
	Acres of newsprint have been taken up with analyses, speculation and second-guessing about the global financial situation. The Prime Minister has time and again expressed his belief that we really do not deserve to be in this situation—it is always somebody else's fault.
	In the debate on 3 November, I mentioned my belief that setting up the MPC was fine, but that the FSA was directing the Government rather than the other way round. The then chairman of the FSA insisted that he should hold the positions both of chairman and CEO, despite the fact that all businesses were being forced to split the roles. The rot set in then, and the culture was established with the belief that they could do as they liked. How will the FSA be affected by the proposed legislation,
	"to ensure fairer and more secure protection for bank depositors"?
	Surely the time has come for the Bank of England, which knows about banks, to regulate them—not the FSA. This, I think, is what the noble Lord, Lord Wakeham, implied.
	This debate is not about the social fabric of our country, but the economy impacts strongly on that. There is a lack of credible information coming from the Government. There is deep unease. All the references to global recession do not cut much ice in the towns and rural hamlets of this country. I mention them because they did not warrant one word in the gracious Speech. There have been many comments that Africa was ignored: that was a real shame. But where were British agriculture, British food and British farming mentioned? I will not be fobbed off by the passage in the gracious Speech saying that the Government,
	"will bring forward legislation to promote local economic development and to create greater opportunities for community and individual involvement in local decision-making".
	The Government should occasionally read local papers and see what people really think of the grandiose development agencies—I refer to the speech of the noble Lord, Lord Razzall. One of these agencies had taxi bills of more than £45,000 per annum for the two-day-a-week chairman.
	The Government should also read how the previous Minister with responsibility for housing visited an area to "listen" to the concerns of local people who had spent a huge amount of time consulting the vast majority of inhabitants about a proposal to put an eco town on 87 per cent grade 1 land. The Minister declined an invitation to walk round the site, saying, "I've seen it from my car". She then spent more than an hour at the meeting place while her driver kept the car running the whole time. How eco is that? Do the Government really think that the words in the gracious Speech about creating greater opportunities for community and individual involvement in local decision-making will be met with anything other than derision in that area, and in rural Britain generally?
	I remind the Government that they became the government of this country on the votes of 22 per cent of the electorate. That has given them the ability to ride rough, and rough it has been, over so many of their stalwart supporters, particularly those who have fought for this country. If I felt that we could believe anything that we hear from the Government, I might have hope. As it is, I cannot, because the gracious Speech failed lamentably to give me that hope.

Lord Layard: My Lords, I am delighted on this side of the House to follow my noble friend Lord Thomas's fine remarks. Like him, I congratulate the Government on their handling of this extremely serious crisis. As we know, they have led the world in handling the banking aspects of the crisis and have been resolute and clear on the need for increasing fiscal deficits. Since the Opposition do not consider that acceptable, I shall concentrate my remarks on fiscal policy: first, the rationale for deficits and increased borrowing; secondly, the composition of the increased government expenditure; and, thirdly, the longer-term future of government expenditure within the PBR.
	We have, of course, an exceptionally severe crisis, more complicated than any that we have had since the war. We have only one thing on our side: the depreciating currency. Otherwise, very little can help us, any more than any other country in a worldwide crisis. The problem everywhere is sustaining the level of spending, which is why it is not helpful to talk about the need for increased saving in the short run. The ideal, as the Prime Minister has said so many times, would be a worldwide expenditure reflation where every country would gain from the expansion in every other country.
	It is encouraging that Mr Obama is now talking about an injection of 3 per cent of GDP, a serious sum. The European Commission has been talking about 1.5 per cent. Yet the Opposition are saying that these deficits, which would be unfunded, cannot work even though they have worldwide support. Instead, they have said that the deficits will simply force up the rate of interest that the Government must pay on their debts. There is absolutely no reason why that should follow. There is currently a worldwide glut of savings looking for safe places to go, which is one reason why the long-term interest rates on British government debt are currently falling. Of course, we have the lowest debt ratio of the G7 countries.
	In any case, if it became difficult to fund the deficit from the private sector, it is perfectly respectable for the Government to borrow from the Bank of England. Printing money in a slump is a totally respectable policy. Of course, eventually, when the private demand for liquidity starts coming down, you must reduce the supply of money and the bank must mop up the excess supply of money by selling the government bonds that it previously bought in the immediate crisis. However, that time comes only after the crisis is over.
	I have some specific points on the composition of the fiscal reflation. The Government's policy is to cut VAT and bring forward capital expenditure, but they have also shown great wisdom in giving extra money to Jobcentre Plus. There could be no bigger mistake than giving up on welfare to work in this crisis. That would lead only to a ballooning of long-term unemployment, as we saw in the early and middle 1980s when the noble Baroness, Lady Thatcher, abolished the requirement for unemployed people to sign on at jobcentres. These are the kind of mistakes that we must absolutely avoid.
	In that connection, speaking as a labour economist, I warn the Leader of the Opposition that we know that, if you want to stimulate employers to employ long-term unemployed people, it is much less effective to do that through tax relief than through some well administered system of financial inducement in the hands of Jobcentre Plus. That is a worldwide fact well established in the experience of many countries.
	I come back to the other issues to do with expenditure. The Government are mainly bringing forward physical capital expenditure, but I understand that they are also now considering bringing forward some human capital expenditure, which I would very much welcome. I mention two candidates. One is the guaranteed apprenticeship, which the Secretary of State mentioned. At present, this is scheduled to come in in 2013. Why not bring it forward to 2011? The second is the help given to people suffering from depression and anxiety, whose number will inevitably grow as a result of the recession. The Government are committed to implementing NICE guidelines for that unfortunate group of people by 2013. Why not bring that forward to 2011?
	As regards the long-term future of government expenditure, by 2013 the Government aim to return the share of government expenditure in GDP to the same level as in 2008, which will mean that from 2011 government expenditure will have to grow very much less than national income. I wonder whether that will be a viable policy. We know that the demand for health, education, social services and the police grows faster than income. This is a worldwide experience. That is what people want as their income rises. On top of that we have a new factor in the labour market arising from the impending decline of the financial services sector. That sector has grown and over the past 20 years has been a major competitor with the public services for labour. It will now shrink—in my view, permanently. If at the same time there is a big public demand for skilled labour to deliver smaller class sizes, better healthcare, better social workers and more police, it seems at least possible that public pressure will force the Government to increase expenditure on public services at a faster rate than is allowed for in the PBR.
	I wonder how we are to achieve our climate change commitments without more green taxes. However, that is speculation as regards the future. For now, we can only praise the Government for the way in which they have tackled this crisis. I sympathise with what the noble Lord, Lord Skidelsky, said. We may find that we have to do more by way of reflation than we have allowed for in our plans, as Mr Obama is planning to do. However, we have made an excellent start.

Viscount Trenchard: My Lords, I am grateful to the Secretary of State for introducing the debate.
	The Government would have us believe that this financial crisis is global or supranational and that they have no responsibility at all for its creation or for the fact that the cupboard is bare at the onset of the crisis. On the other hand, the Government are prematurely trying to take the credit for solving the crisis by taking decisive action earlier than others and by creating the model for rescuing financial institutions which has now been followed by others around the world.
	It is true that the financial crisis is global. However, London is the most important financial centre in the world and financial services account for a significantly greater proportion of GDP than is the case in all the other leading economies. Financial markets are now largely global. The Government, by their own profligacy during the boom years, set an example that was unfortunately followed by the banks. They inherited a healthy and improving economy in 1997 but have borrowed too much and spent it all during the good years.
	The gracious Speech acknowledges that the strength of the financial sector is vital to the future vibrancy of the economy and says that the Banking Bill will ensure fairer and more secure protection for bank depositors and improve the resilience of the financial sector. It is true that the Government did move, perhaps belatedly, but decisively, to recapitalise the banks. Will the Minister explain why the Government needed to be quite so vindictive and punitive towards the banks in the detail of the measures that they have adopted, which are harsher and more demanding than the equivalent measures adopted by other countries in various ways?
	The Government have said that they will not act directly as a hands-on shareholder. In that case, why did they insist on taking such a large proportion of their shareholding as ordinary shares? Indeed, why did they not provide most, or even the whole, of the recapitalisation package in the form of preference shares, thus avoiding dilution of ordinary shareholders?
	By no means have the Japanese Government excelled in the management of their economy over the years. I declare an interest, in that I am employed by Mizuho International plc, the London-based investment banking unit of the Mizuho Financial Group. Mizuho has suffered some sub-prime-related losses in the current crisis, although these are relatively modest compared with the losses sustained by many leading American and European banks. The three leading Japanese banking groups are in relatively much better shape than many of their American and European competitors. One thing that the Japanese authorities did get right was the scheme used to recapitalise the Japanese banks after the collapse of the property bubble in the 1990s. It was done wholly by the issuance of preference shares; there was no talk of nationalisation. There were strings attached but, crucially, there was no restriction on the payment of dividends. The preference shares have now all been paid back.
	This crisis is of course different in both scale and reach, but there are still two good reasons why the Government should revisit their decision to restrict dividends on our banks' ordinary shares while the preference shares are outstanding. First, the purpose of issuing the preference shares and the equity injection was to recapitalise the banking system. To ban ordinary dividends until the preference shares are repaid distorts incentives towards shrinking the capital base of the industry by prematurely retiring the preference shares simply to restart the payment of ordinary dividends. Secondly, if the Government permitted dividends on the ordinary equity, there would be a significantly greater chance of clawback taking place, reducing the cost and risk to the taxpayer of recapitalising the banks. It would also underpin the value and marketability of any stake of ordinary shares that the Government held.
	To turn back to the question of preference shares, why have the Government saddled the banks with a cripplingly high coupon level of 12 per cent, just at the time when the base rate has been cut to 2 per cent? As Dominic Lawson asked in his excellent article in yesterday's Sunday Times, referring to the Prime Minister,
	"if 12 per cent is the rate he believes it is necessary to charge the banks for long-term money, why should the banks be expected to charge only one-sixth of that to other British businesses?".
	The Prime Minister boasts that other countries, such as the United States and Germany, have followed his lead in recapitalising their banks. But other countries have been much more reasonable and less punitive towards the banks. The US Treasury has imposed a coupon of 5 per cent on its new preference shares, while in Germany the coupon is between 5.5 per cent and 8.5 per cent.
	I would like to say a quick word about regulation. I do not agree with the noble Lord, Lord Turner, that the FSA needs more people. The FSA seems to me to already have far too many people and to spend a great proportion of its time on internal meetings—it is very inward looking—and on having conferences with other regulators. It is essential to preserve the competitiveness of the City of London in the future and, to that end, we should not rush to introduce much more strict regulation. We need better regulation, not more of it.
	Other noble Lords have mentioned the pensions problems. I look forward to hearing what the Minister has to say about the ever growing, unfunded public sector pension liability, which stands, I think, at some £1.3 trillion, at a time when our private sector pension schemes are suffering even more from the collapse of the markets and their deficits will be much bigger than they were a year ago.

Lord Haskel: My Lords, the starting place for today's debate must be the financial and industrial crisis about which many noble Lords have spoken. All that I can say is thank goodness we have a Government who quickly came to grips with the crisis and acted, instead of just resorting to what I can only describe as uncaring sloganeering from the sidelines. However, while acting, the Government must have an eye to the future. This is what the gracious Speech tried to do, because a necessary part of leadership in a crisis is to present a picture of the future—a picture of what things will look like after the crisis. The right reverend Prelate said that it was not going to be the same, and he is right.
	One thing that we will have to tell people is that although skills training must and will continue, as the Minister explained, the plum jobs will be much harder to come by. He spoke of alternatives. Many more people may well have to start things for themselves. The Government are right to do more to finance start-ups and early-stage businesses. Social and community development finance is helping, too. The noble Lord, Lord Bilimoria, who I am sorry is not in his place, paints too dark a picture, because tax rates are not the main concern of people who are starting up or running a small business. There is nothing wrong in doing something which you find interesting and absorbing but is low paid, especially when security is less important because you are young or have no dependants. You may find this in the expanding social enterprise sector, in crossover with charities or in the world of the internet, which requires little or no start-up capital yet is producing a growing number of businesses. Two-thirds of home workers are self-employed. Home working is bound to grow, partly because of the low overheads and partly because of the reduced carbon footprint.
	We all agree that much of this new kind of work will come from the Climate Change Act—and that is right—but that needs to be spelt out a bit more. Yes, there are high-tech solutions like nuclear power stations and carbon capture, but at the same time there is a lot of low-tech work to be done, such as insulating homes and offices, sorting waste so that it can be used and recycled, or so that it can become a source of energy, not just rubbish. As the power or energy components of products become critical and more expensive, the paradigm of "reduce, reuse and recycle" is catching on and is leading to new types of manufacturing. Caterpillar equipment is being made in Gloucestershire by a combination of reusing parts from old machines together with new components. Disassembly and reassembly will lead to different economics in manufacturing and a new kind of manufacturing job here.
	It was the leader of the Opposition who spoke about balance when he addressed the CBI last month. He said:
	"We must never again let our economy become so dependent on such a small number of industries and markets like finance and housing".
	The Prime Minister and the Secretary of State spoke about developing strategies to help compensate for the shrinkage in financial services. I agree.
	Much of this rebalancing will come from the Government's encouragement of science and technology—encouragement that they have given ever since they came to power in 1997. As my noble friend Lord Rooker reminded us, a lot of thought, effort and research has gone into what new challenges society will face and how technology can deal with them. Our Foresight programmes have imagined the future. Our research councils and universities have researched this. The Technology Strategy Board is driving business to put this into practice in many areas—in energy, buildings, transport, medicine and healthcare, the creative industries and in high-value services. I hope that by the time this crisis is over we will have finally broken down the attitude that has created an artificial barrier between manufacturing and services, which has done much to hinder our economy. Millions of pounds are being spent on this every day, not to retain the past, but to create the future—a balanced future. As well as telling us how much is being spent on rescuing the banks, I hope that the Government, with equal frankness, will tell us how much is being spent on building our future.
	One may say, "What about businesses? Will they do their part?". I have every confidence that they will, because, as my noble friend Lord Bhattacharyya reminded us, research shows that companies that stick to their R&D as recession bites and sales drop enhance their position against their competitors, because when the upturn comes they have better products and services.
	I hope that my noble friend can confirm that this work will continue. The 44 science training centres announced last week are a good sign that it will. Particularly to my noble friend Lord Rooker, I should declare an interest as president of perhaps the largest knowledge transfer network, Materials UK, which brings together many of the things that I have mentioned. As he indicated, we are all interconnected now. After this crisis, business management will become flatter and leaner; so will government—it always does after a recession. Flatter and leaner means that the important things that we do are the things that we do with others. This means using other people's technology as well as other people's money. The beneficiaries of new technologies are not just those who invent them; the main beneficiaries are those who use them to challenge the old technologies. This will have to be reflected in the new relationship between business and government.
	I suggest one simple way in which this relationship can be improved: change the basis of consultation. In recent years, a certain cynicism has entered into this relationship on both sides. Business has used consultation for lobbying and the Government have viewed this as corporate self-interest. True consultation is important, because policy emerges at great speed, and sensible policy that works is everyone's goal. However, consultation largely involves organisations which are set up to carry it out and lobby for their interests at the same time. This is what gives rise to the cynicism. Perhaps the current dialogue points to another way, because individuals must contribute to consultation. Their professionalism, expertise and passion for their industry need to be heard. Cannot this consultation take place in other ways, such as making people's views available on videos to us all on a special website? This is what our children do, and maybe we can learn from them. I know that this will mean more work for the Government, but we will all have to work harder to make the new relationships work and to make markets work better.
	To secure this future, we must have a picture of what our economy and society will look like. Interdependence will be a large part of it, much larger than now, and we must prepare for it.

Lord Smith of Clifton: My Lords, I want to raise two aspects of the operations of UK business, neither of which is adequately dealt with in the gracious Speech. The first is the critical need to improve the standards of corporate governance, while the second concerns the chronic gender imbalance as regards both the numbers and remuneration of women directors and senior managers.
	Corporate governance was the subject of three separate and successive inquiries in the 1990s. The Cadbury, Greenbury and Hampel reports examined different aspects and made recommendations accordingly. With hindsight, in view of the magnitude of the crisis that has since engulfed trade and commerce both in the UK and worldwide, these inquiries were inadequate to fend off what was to come. The Enron debacle, a portent as to the future casino character of capitalism, provided a glaring warning that was not heeded. The imminent Wigley report on promoting the City of London as an international finance centre, while doubtless useful in a limited way, will not deal with the fundamentals of the problem. A much more substantial analysis is now needed and the Government should appoint a high-powered inquiry to undertake it as a matter of urgency. Codes of conduct now must have a statutory basis as voluntary self-regulation has proved useless. Furthermore, radical reforms to company law may also be necessary.
	A preliminary start has been made by the Association of Chartered Certified Accountants. Its publication, Corporate Governance and the Credit Crunch, published last month, is a thoughtful and timely contribution as to the way forward. The ACCA identifies a failure in corporate governance as the underlying factor that led to the credit crunch. It makes nine proposals to help to remedy the situation. I shall not detail them all now but will highlight the main ones.
	To begin with,
	"boards have failed in their responsibilities",
	have not asked the right questions, and,
	"have allowed inadequate risk management and sanctioned remuneration incentives that influenced behaviour without proper consideration of risk".
	Furthermore:
	"Risk management tools have not always been fit for purpose".
	This has been exacerbated by the overcomplexity of products in the financial sector and poor training of both executive and non-executive directors that led to a lack of understanding of the associated risks. Crucially, boards, and particularly non-executive directors need assurance independent of management, which requires a much greater enhancement of the role of internal audit, including, in the words of Professor Andrew Chambers, the creation of a cadre of "super auditors" who can relate on even terms with board members.
	Then there is the question of the effectiveness of the regulators. Clearly, the Treasury, the Bank of England and the FSA were an inadequate triumvirate of agencies. The proposed banking Bill is intended to improve regulatory oversight of the banks and this House must ensure that it does so.
	Whatever the shortcomings of regulation, the fact remains that the boards of many companies, especially the banks, were guilty of gross dereliction of duty. In our debate on the British economy on 3 November, perhaps too much stress was put on regulatory failure and far too little on boardroom behaviour: however incompetent the policing may have been, that does not exonerate the wrongdoers, who should be punished.
	In yesterday's Sunday Telegraph—not a left-wing newspaper—Liam Halligan wrote:
	"It's not good enough to 'avoid the blame game' and 'look to the future'. For, be in no doubt, this crisis has its roots in fraud—from the mortgage brokers who sold loans they knew would fail to the investment 'professionals' who rolled-up the debts into securities and the ratings agencies that stamped them 'triple-A'.
	We need tough questions and full investigations. Those most guilty must go to jail. Unless that happens, and is seen to happen, expect a repeat crisis in a few years' time".
	That does not exaggerate the predicament that has to be faced.
	I now turn to my second question—namely, the under-representation of women on the boards of major companies and their relative underpayment. The situation is getting worse in many respects. For example, the Office for National Statistics reported in November that the gender pay gap has widened over the past year. Men in full-time work are paid 17.1 per cent more than their female counterparts, while those engaged in part-time work earn 36.6 per cent more. Moreover, a recent study by the University of Exeter found that women directors earn smaller performance-related bonuses because they are less likely than male colleagues to be given credit for business performance.
	Of even greater significance, the World Economic Forum revealed that the UK had fallen from 11th to 13th in the global gender equality league—one below Sri Lanka. In terms of overall economic participation, covering earnings and the proportion of senior managers and professionals, Britain has dropped no fewer that 10 places from its 2007-08 score to number 42 in the world rankings.
	I have drawn attention before in your Lordships' House to the splendid example of Norway. In 2003, it passed legislation requiring women to hold 40 per cent of the main board seats in public companies by 2008. This year has seen that goal exceeded, with 44.2 per cent of directors being women. That is a dramatic increase, given that in 2003, when the law came into force, women directors accounted for only 6 per cent of the total. Sweden and Spain now have similar legal requirements in place, and New Zealand and Australia are actively considering adopting such affirmative action. Why is the UK so slow to follow suit?
	If the Government continue to do nothing positive in this regard, and the reporting of gender pay discrepancies, as envisaged in the gracious Speech, is little more than a token gesture, one recent study estimates that gender balance in corporate board directorships will not be realised, incredible as it may seem, until 2225. The House of Lords might by then be even further reformed.
	The Government insist that it is up to shareholders to initiate progressive reforms, but the present economic crisis has proved how little power they can wield, even if they were inclined to do so. The Government are now the major shareholder in many of the banks. Will they make provision in the forthcoming banking Bill, announced in the gracious Speech, for 40 per cent of the directors on their boards to be women? If not, why not? I should like to be reassured that they intend to introduce a 50 per cent rule.
	We know where the pale, stale, male composition of the boards of major public companies have got us—up the creek without a paddle. The creation of greater diversity on corporate boards by the appointment of more women directors correlates with better financial performance. A 2008 study of Fortune 500 companies found that, on average, enterprises with higher percentages of women directors outperformed companies with lower ratios.
	It is high time that the Government tackled the related problems of poor corporate governance and the inequality of women in senior management that currently afflict the United Kingdom.

Baroness Kingsmill: My Lords, I intend to be brief, not least because the noble Lord, Lord Smith of Clifton, has somewhat stolen my thunder by saying exactly what I would have wished to say had I thought of it first—or, at least, had I appeared higher in the list of speakers.
	It is very important that we do not forget that we have had 10 years of unprecedented growth and stability. As we sit here today listening to the doom and gloom of the current recession, it is most important to recognise that we have had very good times thanks to the sound economic policies of this Government. Hospitals and schools have been built, people who might otherwise not have been able to have bought their houses, and our town centres have been regenerated and rejuvenated. Therefore, we should not forget the advances that have been made and the wealth that has been created.
	Perhaps I may detain noble Lords for a moment or two with an anecdote. I recently brought a couple to the House for tea. They were young entrepreneurs—I say "young" but it is all relative; they were in their early 40s. During the past 10 years, they had established and developed a very successful waste management business, recycling the waste products of the metal industry in south Wales. They had recently decided to gift 15 per cent of their company to their employees. Because of the wealth they had created due to the favourable economic conditions of the past 10 years, they had also decided to set up a fund to benefit social enterprises—that is, to benefit those who were setting up businesses designed not only to make a profit but to meet a social need. It is interesting that in these difficult times such businesses appear to be flourishing. I recently spoke at an event at which 250 people of high net worth appeared to listen to five or six young people talking about their businesses in the social enterprise sector. Those enterprises ranged from making fashion accessories out of recycled clothes to Jamie Oliver's trendy restaurant Fifteen. All of them excited great interest from potential investors. It is most important that we see where the potential green shoots are.
	There is no doubt that we are in difficult times and that we must look for the best ways of managing and emerging from them. I am pleased that in the gracious Speech the Government set out plans to emphasise protection of employment and to develop training programmes. This is a perfect time to concentrate on the development of our human capital, as that is what will enable us to get out of the difficulties now facing us. We also need to concentrate on having a more diverse economy. There has perhaps been too much concentration on financial services and insurance, and we are suffering from it. Although it is important to focus on excellence, perhaps it would be useful to hedge our bets by focusing on a more diverse economy.
	I would not want to sit down without saying something about competition. While I completely support the Government's moves in the banking sector in most respects, I am most anxious about lifting the competition rules within the sector. I have expressed those views in this House before and I express them again now. Although I understand the pressures of the moment, I am agreeing with Irwin Stelzer's views in today's Financial Times when I say that I think the competition regulators should be at the table when the negotiations on future regulation of the financial sector take place.
	I commend the Government also on their moves to stimulate innovation. Young innovative entrepreneurs will provide us with the best way out of this downturn. We must remember that the downturn is of global proportions and it will take time, persistence and a great deal of support to improve matters. We are in it for the long haul, but I see green shoots of hope.

Lord Tugendhat: My Lords, it is just over a month since we last debated economic affairs in this House and I see many familiar faces on the Benches around us. The newcomer is the Secretary of State and I congratulate him on the courtesy that he is showing the House by the amount of time that he is spending on the Bench. It is good to see such a senior Minister in that position.
	Since we last debated these matters the gloom has deepened, and the economic pain has got worse and the forecasts gloomier. I remember the noble Lord, Lord Burns, saying last time that we are at that point in the cycle when pessimism reigns. It may be true that brave men buy but others demand that Governments take further action. I have a good deal of sympathy with those making the demands. They are suffering real pain, fearing for their futures, their jobs, their businesses and their houses.
	It behoves us to look back over the last month to see how much has been done. First, we had the recapitalisation of the banks, which of course was before our debate. Since then we have had two rounds of interest rate cuts. I was among those who criticised the Bank of England for not having acted earlier, but we certainly cannot complain about its most recent actions. Interest rates have come down to levels not seen since Harold Macmillan was Prime Minister. We have also had the autumn Budget. Other countries from Europe to the Far East have taken action, although I must say that I wish the Germans had done more. In the United States, President-elect Obama is promising a major stimulus.
	We should not underestimate the scale of what has been done. The British economy at present is like a patient. It may be flat on its back but it has been given a massive resuscitation. The combination of the measures that have been taken, which I largely support, will have a substantial impact in the sense of mitigating and shortening the recession. That will take time, of course, and I suspect that there will be a further deepening of the gloom and a worsening of the forecasts before improvement begins to show. I do not criticise the Government for what they have done. Rather I regret that because of the Prime Minister's earlier profligacy when he was Chancellor, the present Chancellor has been so constrained in what he has been able to do. That, of course, is water under the bridge. We are where we are.
	The priority now should be not on introducing major new measures but on reinforcing what has already been done so that the effects can work through the system as quickly as possible. Many noble Lords have made the point that the emphasis should now be on stimulating the credit markets, encouraging lending and getting the banks to do more. As Alan Duncan said in the Financial Times last week:
	"We need bold steps to open channels of credit".
	David Cameron has come up with a proposal for a national loans guarantee scheme to guarantee new loans to businesses for a commercial insurance fee. That is the sort of idea that needs to be worked on. It is the kind of direction in which we ought to be going. I suspect that similar incentives may well be required for the mortgage market. My noble friend Lady Noakes made some similar comments from the Front Bench earlier.
	That would be a much better approach than having the Government barking out conflicting orders to the banks about what they should be doing. At one moment the emphasis is on strengthening their balance sheets and repaying the assistance they have received but, as the noble Lord, Lord Skidelsky, and my noble friend Lord Trenchard said, the terms on which the banks have been recapitalised in this country are notably harsher than in some others. That may or may not be a good thing but the banks certainly have to take it into account in formulating their own policies. As others have pointed out, they have interest to pay on the one hand, which must be borne in mind when criticising them for some of their difficulties in lending money on the other.
	The Government have produced a back-of-the-envelope scheme for helping householders in trouble, which is very laudable objective, but I suspect that it will be difficult to work out a scheme that will be effective. The Government criticise the banks for not passing on interest rate cuts in such a way that takes no account of the conditions in the interbank market or of the position of savers—a point raised by my noble friends Lady O'Cathain and Lord MacGregor. It is desirable for the Government to turn their attention to this matter. I am thinking particularly of those aged 50, 55 and above whose pension funds have been—I was going to say decimated, but that would be an understatement—ravaged and whose interest payments from banks and building societies have been sharply reduced. Far from stimulating the economy, that considerable section of the community will surely be battening down the hatches. The Government should seek to do something to help them for reasons of social justice, but also because it is important that that group should be able to contribute to our recovery. I have read that the Government are considering ideas for extending ISAs. If so, I hope that they will consider them further and come up with ideas that enable ISAs to be extended and, perhaps, for similar measures to be introduced that will assist that section of the community.
	The British economy has suffered a large, novel and global shock. As a result of the Prime Minister's profligacy when he was Chancellor, to which I have referred, the UK is in a less good position to confront this crisis than some other countries, but it is a world crisis, as Ministers have pointed out. It is going to be important that the measures that the Government take from now on, like those they took earlier, should as far as possible be co-ordinated with our partners in the European Union, the United States and beyond.

Lord Broers: My Lords, I compliment the noble Lords, Lord Rooker and Lord Bhattacharyya, on their advocacy of the importance of engineering and technology to our economy. I strongly endorse what they said. Our economy will not recover without engineering and technology.
	It is extraordinarily difficult to find a silver lining in the economic storm clouds that cover the sky today, but I think that I have found one, even if it is small. In August 2007, this House's Science and Technology Select Committee—I declare an interest as I was chairman of the committee at that time—published a report on personal internet security that contained a number of recommendations that we felt should have been accepted and acted upon rapidly. One was that the aspects of the voluntary Banking Code that relate to the way in which banks deal with fraud, especially with electronic fraud, should be made statutory. It was amazing to us that the Banking Code as a whole was voluntary, not statutory. The Government responded in October last year by rejecting that recommendation along with most of our other recommendations.
	Since the Government response was so unacceptably complacent and dismissive, the committee conducted a follow-up report, which we debated in this Chamber a few weeks ago. In that debate, I again raised the issue of making the Banking Code statutory, as there were no signs of action by the Government. I was gratified a couple of weeks later by a letter written following the debate by the noble Lord, Lord Brett, to those who had spoken in it. He said that the Government intend to make the Banking Code statutory. Eureka! That is my faint silver lining. It is a little tarnished through being so overdue, but at last the Government have woken up to the need for statutory rather than voluntary regulation of the banking sector, if only in the face of an economic hurricane of unrecorded violence created as much by the lack of effective regulation as by the lack of appropriate indicators. I shall return to them in a minute.
	The committee also asked that the Government rescind their recommendation that those who have been victims of credit card fraud should report it to their bank rather than to the police. The banks are not law-enforcement agents and are conflicted in issues of fraud. It is very often not in their interest to ask the police to investigate such crimes, and such evidence as exists suggests that they pass very few cases to the police. I discussed the question of evidence here on 10 October and will not repeat what I said. I am again thankful that there are signs that our point has now, at last, been recognised. A recent letter from Alan Campbell, Under-Secretary of State in the Home Office, to the noble Lord, Lord Sutherland, the current chairman of the Science and Technology Select Committee, told him that the Home Office has finally asked Her Majesty's Inspectorate of Constabulary to look into this matter.
	Regulation and fraud prevention are matters that we are going to have to tackle in a much broader and more comprehensive manner. Technology is going to be central and important, but clever technology can be used by criminals and, almost worse, by those who may have honest intentions but lack understanding of what they are doing, as well as by those who have the task, to quote the second paragraph of the gracious Speech,
	"to ensure fairer and more secure protection for bank depositors and to improve the resilience of the financial sector".
	It is going to be a race between the forces of intelligence and good and the forces of incompetence and evil. The very finest data-processing engineers will be needed to create the technologies of our regulatory systems and to work with economists to come up with appropriate metrics so that we do not find ourselves again in this incredible situation where the so-called experts totally fail to forecast the hurricane. These new systems will involve people with knowledge of advanced mathematics and, more essentially, intimate knowledge of the intricacies of large computing and communications systems. Major shifts in regulatory and law-enforcement resources will have to be made, and extensive training and research programmes will have to be put in place.
	The electronic revolution has changed the world of finance completely, and many of the leaders of financial institutions have been found to lack even an elementary understanding of what those lower in their organisation were doing. Will the Minister reassure us that the Government have completely discarded their complacency about the security of our banking systems, which they maintained until a few months ago, and that they will find, for government at least, people better qualified to manage and police our financial systems?

Lord Borrie: My Lords, on 22 October my noble friend the Secretary of State, who we are delighted to see leading this debate, made a Statement stressing the importance of small and medium-sized enterprises to the UK economy. The noble Lord, Lord Bilimoria, must have been pleased with it because, among other things, the Secretary of State stressed the need for small enterprises to receive prompt payment of moneys due to them. The Secretary of State indicated today, as well as on 22 October, that central government has a good record. It now aims to pay its suppliers as soon as possible, at the very latest within 10 days. The Government have indicated to other public bodies, such as local government and the National Health Service, that they should follow their lead.
	However, too many private sector companies and too many big companies unfortunately make their suppliers wait for their money. Sometimes they even boast about it, or they used to. Some are imposing new terms and conditions on owners of small businesses. Last month, Tesco doubled the time it would deign to take to pay some suppliers from 30 to 60 days. The Federation of Small Businesses has sent me a letter from Alliance Boots, which owns the chain of chemists, providing for payments 75 days from the end of the month of invoice and for the application of a settlement discount—jolly nice that you are going to get a settlement, you see—of 2.5 per cent of the invoice value. As the FSB national chairman, Mr John Wright, said:
	"Making small businesses wait 105 days for payment and charging them for the privilege of doing so is nothing short of outrageous ... it is shocking that large companies think it is acceptable to use them as an unofficial source of credit".
	Legislation was introduced—I remember it but not very well and not very clearly 10 years later—in the first year of the Labour Government, and it became the Late Payment of Commercial Debts (Interest) Act 1998, which enabled small businesses to charge interest of 8 per cent above the base rate on debts due from large businesses. It was well intentioned—it was meant to deter large companies from delaying unduly the payment of their debts—but many small businesses are pretty naturally afraid of using the legislation in case they lose important and valuable contracts. My question to Ministers is this: what about a role for public officials to enforce this legislation—trading standards officers, perhaps, who could act on behalf of several suppliers who are reluctant individually to sue and who are creditors of a major business that is delaying unduly the payment of its debts?
	A relatively unknown provision of the Companies Act is a requirement that businesses specify their payment times in their annual reports to Companies House. Apparently, about 4,000 companies do that. Another 6,000 do not. The latter are acting illegally. Is it not someone's responsibility to enforce it, and should it not be enforced?
	If, as the Government say, small and medium-sized enterprises are vital to the UK economy, it is certainly vital that they are given ample scope to compete in the marketplace against established businesses. Established businesses must not be allowed to squeeze small businesses out of a market through cartels or other restrictive practices to prevent or distort competition. I was delighted when the Enterprise Act 2002 strengthened the law against anti-competitive mergers, takeovers and other restrictive practices. In the light of Her Majesty's Government's decision to override the view of the Office of Fair Trading that competition would be substantially reduced in the banking world through the recent takeover of HBOS by Lloyds TSB, I would certainly welcome reassurance that the promotion of competition is still a key part of government policy towards business. I know that my noble friend Lady Kingsmill agrees with me on that point.
	At a time of recession, there is always a risk that Governments, or larger bodies such as the European Community, may jettison competition, free trade and the long-term public interest in favour of protectionism and promoting the interests of so-called national champions—a phrase that I am happy to say I have not heard much lately, but one never knows; it might re-emerge. In a downturn, it is more than ever vital that a strong competition regime that is strongly supported by government—whether it is a national regime or a regime at the level of Brussels—protects consumers and legitimate business, because competition helps to advance enterprise and innovation, to break down barriers to entry and to raise productivity. Businesses that disregard their legal obligations, to the detriment of consumers, must not be allowed to use their difficult economic circumstances, as they would argue, as an excuse.

Lord Higgins: My Lords, I agree wholeheartedly with what the noble Lord, Lord Borrie, has just said about the importance of competition. I shall concentrate my remarks on the statement in the gracious Speech that the Government's,
	"overriding priority is to ensure the stability of the British economy".—[Official Report, 3/12/08; col. 1.]
	First, however, I shall say a word or two about leaks and spin.
	Controversy is raging at the other end of the building about alleged leaks from the Home Office, but virtually nothing seems to have been said about the extent to which the PBR and the Queen's Speech were published in the newspapers in great detail the day before they were announced. The convention was always that such important matters are announced first to Parliament. That does not appear to be the case at present. The gracious Speech says that the Government will strengthen the role of Parliament. They could begin by dealing first with what seemed to be leaks from the Government themselves. It is not true that the spin machine is infallible. I do not think that any Chancellor could have spent as much money as the Chancellor did the other day in the PBR and got the rotten set of headlines that he did the following day.
	I turn to the more substantive issues. The Government's attitude to the stability of the economy is set out in the PBR, but their analysis is seriously flawed for this reason: there seems to be almost complete confusion in the Government's mind between interest rate policy and monetary policy. Indeed, the two are treated as virtually identical. There is, of course, a close relationship between them, but they are not the same. Interest rate policy is concerned with the price of money; monetary policy is concerned with the quantity of money. I am glad to see that I carry the Minister with me on this point.
	The Government also seem to be under the impression in the PBR that the Bank of England has been given the authority to set interest rates independently. Would that that were so. It has been given independent authority to set just one interest rate. Again, I see that I carry the Minister with me. Alas, LIBOR makes it evident that what the Government say in the PBR is not the case. When Mr Brown transferred the responsibility for interest rate policy to the Bank of England, he clawed back to the Treasury the responsibility for debt management, which is crucial to the quantity of money that is generated.
	As far as general economic policy is concerned, we are all Keynesians now. It is right that we should adopt Keynesian policies in normal circumstances and that, if there is a recession, we should take other stimulating fiscal measures in addition to the automatic stabilisers. Generally with Keynes, one starts from the position of a surplus. The trouble with the present recession is that this Government started with a massive deficit. That creates enormous problems for the operation of monetary policy and in particular for intergenerational transfers, as we are now transferring huge amounts from our present generation to future generations.
	That being so, the important thing is to learn not only from Keynes but from Milton Friedman. The extraordinary thing is that one ought to concentrate on monetary policy as far as the quantity of money is concerned. One can search in vain throughout this enormous volume—at least, I have done so—to find any mention of what will happen to the money supply. Perhaps when the Minister winds up he will say what he thinks the pattern of money supply growth will be, because one cannot get this from the PBR.
	What one can get is some startling figures about the extent to which the Government's net cash requirement, which used to be the PSBR, is likely to increase. It is set to rise from £59.3 billion—I love the precision of these figures—in the Budget of 2008 to £152.9 billion at the present time, or at least in the projection. That is an increase of £93.6 billion. The question that we must ask the Minister is: how will this be funded? There appears to be an extraordinary reliance on national savings, which seems to be rather inconsistent with the general government view that people should go out and spend. However, it is a trivial amount compared with the amount of Treasury bills that the Government propose to issue—from £5.8 billion to £14.53 billion—or the amount of gilts, from £80 billion to £146 billion. Who will fund this enormous deficit?
	The crucial question is whether it will be funded from what in the jargon used to be known as the non-bank public. If it is, that will nullify the effect. It is inconceivable that one can fund this amount from the non-bank public without interest rates going up. One must look not only at the short-term rate, but also at what is happening to the yield curve. We have no idea at all from the PBR what the Government think is going to happen to the yield curve. The Minister is giving an indication, which may appear on television but unfortunately will not appear in the Official Report. One is seriously worried about this.
	The recession clearly has to be dealt with and steps are being taken to do this, but at enormous cost. I believe that there is a danger, with inflation still above its target range, that we will seek to deal with the recession and then find, before we fully come out of it, that there are enormous inflationary pressures in the pipeline. We need to take a longer view than just asking how we get out of the recession. We have to get back to a situation of stability. It is clearly not the case that we are in a stable situation at the moment. I am not convinced that the path tracked by the Government will in fact, for the reason that I have mentioned, lead us back on to an even keel.

Lord Clement-Jones: My Lords, I welcome the opportunity today to raise a number of issues, mainly from the standpoint of the economic future of our creative industries and tourism. In that context, I welcome the new role for the noble Lord, Lord Carter of Barnes, as a Minister in both the DCMS and DBERR, which is a clear recognition that discussion of policy for the future of our creative industries must be shared by those two departments.
	Inevitably, much of the discussion now in the creative and allied industries is dominated by the need to make policy in the context of a recession, whether this means the impact on ITV's PSB commitments of falling advertising revenue, the future of Channel 4 in a similar context, falling recorded music revenues, falling revenues for tourism and heritage or the significant adjustments that need to be made to Olympic planning to allow for the fall in sports sponsorship and the difficulty in raising commercial finance.
	I turn first to the Queen's Speech. A looming recession did not necessarily mean that important legislation in the heritage field needed to be squeezed out of the parliamentary timetable. Is parliamentary time now rationed by the credit crunch? There is great disappointment in the heritage sector at the failure to bring forward the heritage protection Bill. We have had the pre-legislative scrutiny of the draft Bill by the Culture, Media and Sport Select Committee and the government response. After eight years of preparation, it was time to bring this forward. If and when the Bill does return, however, I hope that the Government will take on board many of the improvements that have been suggested by the Culture, Media and Sport Committee, in particular the recommendation that the protection of historic ships should take a greater priority in the Bill. Many historic ships are fast disappearing into scrapyards because they lack proper protection.
	The lack of the new heritage protection Bill is disappointing not only because of its intrinsic worth, but because of the importance of heritage protection, including world heritage sites, to our tourism industry. The Government need to better reflect in their policies the value of tourism and travel to the British economy. Tourism is one of the UK's largest industries. Measured by conventional accounting, it is the fifth largest industry in the UK. Over 2 million jobs are sustained by tourism activity in the UK and the industry employs more people than are employed in construction or transport.
	However, there are some worrying indicators. The UK share of world tourism has declined in recent years. The tourism deficit—the UK balance of payments in tourism—continues to worsen. Domestic tourism is also declining and the latest figures in September show that inbound tourism has dropped heavily. Yet in the face of this the Government have drastically cut the budget of Visit Britain and of tourism promotion, even before the tourism framework review has been completed. Small and medium-sized companies, which the Government claim to be keen to help through this recession, make up 90 per cent of the tourism sector. Will the Government at last acknowledge that the budget for the promotional activities of Visit Britain must be increased if this vital sector of the economy and the small businesses within it are to survive and prosper?
	Let us look at other aspects of economic activity more clearly related to the creative industries. Digital Britain will be the subject of the report by the noble Lord, Lord Carter, due next spring, on which he has recently written to a number of noble Lords explaining the timetable. I welcome his intention to take a strategic look at how a creative digital UK economy can make a major contribution in the future, in terms, as he recently put it, of both the plumbing and the poetry—the technology and the content. I hope that he will take on board a few of the suggestions put forward by me today and by my noble friend Lady Bonham-Carter in the debate on Thursday.
	The take-up of new digital platforms is, by and large, faster in the UK than anywhere else in Europe. We are what might be called a nation of early adopters. What about the content for these platforms, particularly as they converge? Are all these new platforms going to give rise to the necessary critical investment in UK content? Do we simply let the content for the different platforms develop, subject only to existing copyright and competition law, or do we recognise that specific arrangements and incentives need to be put in place to encourage UK-originated creative content and that competition policy therefore needs to be modified?
	Project Kangaroo, a proposed largely free online television platform created by the BBC, Channel 4 and ITV, is where many of us would part company with the Competition Commission, which gave it the thumbs-down in its interpretation of EU competition policy, for example. On the other hand, the BBC proposals for local video services, subject to an Ofcom market impact assessment, fall the other side of the line.
	I was extremely interested by and agreed with many of the comments made by the noble Lord, Lord Carter, in his maiden speech. He recognised that consolidation—what might be called critical mass—was sometimes necessary for UK producers to deliver high-quality content. Children's television is an important and immediate case in point. There are many dedicated channels, such as Nickelodeon and Nick Jr., which deliver high-quality US-originated programmes. However, parents tell us in surveys that they want more UK content for their children and not just on the BBC. Do we simply leave it to the market or do we try to stimulate UK programme content? One of the solutions put forward is for specific support through the tax system for children's television production in the UK. The UK games industry, recently highlighted by a NESTA report, is also an important case in point. If we can fashion a sensible, acceptable approach to film production in the UK, why not for other creative industries, such as games and children's television, which suffer the same issues of US cultural dominance?
	There is too little time today to cover other important aspects of the creative industries, particularly the area of copyright and licensing. However, the Gowers review certainly did not get it completely right on copyright. We need to amend the UK Licensing Act 2003 to encourage more live music and there are many other aspects where we need to benefit artists.
	The Government, too, need to be creative in the way in which they adopt solutions to difficult problems. I am sure that no lack of creativity can be laid at the door of the Secretary of State or the Minister—or, indeed, the noble Lord, Lord Carter of Barnes. I do not expect them to respond in detail to these points today, but I hope that they will give them serious consideration as part of the process of drawing up the digital Britain report.

Lord Paul: My Lords, I should like to say a few words about the reality on the ground of the manufacturing industry. I declare my interest as chairman of Caparo Group, a company engaged in the manufacturing of engineering products.
	The problem of sub-prime lending in the United States, compounded by the irresponsible lending by some of the world's biggest banks, has brought the world's financial system to the brink of collapse. In the past few months, this has spread to the wider economy and manufacturing is now facing very tough times. Most astonishing is how quickly things have changed. According to EEF, the manufacturers' organisation, the first half of 2008 was one of the best on record for manufacturing and even the third quarter looked good, if not great. However, recent indicators have demonstrated a rapid fall in confidence. The most recent official statistics report that manufacturing output was 1.9 per cent lower in the three months to September compared with the same period a year ago. Meanwhile, EEF's latest business trends survey shows that manufacturing activity has deteriorated significantly over the past three months and firms are extremely pessimistic about the outlook.
	As well as the EEF figures, I have experienced this in Caparo. While I do not operate the business—I am a non-executive chairman—it is managed by my son, Angad, who is chief executive. As a father and founder of the company, I am pained to see the struggle that the Caparo family go through everyday to ensure that the company keeps its head above water and remains robust.
	The results to the end of August were strong. They were helped by the relative strength of the euro. Since then, European economies have weakened and almost all customers, whether in the automotive sector or any other sector that Caparo serves, have been hit hard. The situation in the fourth quarter is almost as though all activity has stopped as people try to burn through their inventory in order to conserve cash, also without much success. Of course, there is the added struggle that companies have with the pension costs as a result of the recent fall in stock market values.
	There remain some reasons for hope. First, manufacturing has been through massive change and is far more resilient these days. Secondly, the Government have provided strong and determined leadership. There is no doubt in my mind that, after a decade as Chancellor, my right honourable friend the Prime Minister has the experience, ability and passion to lead us through these difficult times. He has already shown his commitment and determination.
	Moreover, business welcomes many of the measures announced in the recent Pre-Budget Report and the Queen's Speech. Governments tend to focus on the big companies and sectors, but small and medium-sized enterprises remain the economic lifeblood of this country. SMEs welcome the delay announced in the PBR to the planned rise in the small companies' rate of corporation tax, recent proposals on export credit guarantees and the small business finance scheme. However, all business will be concerned by the proposed increase in national insurance contributions.
	I suggest that the help available to SMEs should be made on the basis of a company as an entity. Any company owned by a larger group but operating as a separate entity should be entitled to the same help as an independent SME. Otherwise, we are hastening the demise of those subsidiary companies, as they will not be able to compete and the tendency of any group is to close subsidiaries that cannot remain competitive.
	On the Queen's Speech, one of the most pressing issues facing business is getting the banks to start lending again. Many companies have reported the withdrawal of, or changes to, their credit or overdraft facilities at very short notice. However, Caparo's experience with its main banker, Barclays, has been very good. My chief executive tells me that the bank has been helpful and understanding. I hope that no noble Lord is a director of Barclays in case it changes its mind after my speech.
	I hope that the Banking Bill will end the uncertainty surrounding lending terms and conditions. However, the problem of how to ensure that we keep finance flowing to business, while allowing banks to assess risk and take commercial decisions, remains. There is no easy answer, but perhaps it is time to set up an industrial development bank with a majority of real manufacturers on its board. There is increasing difficulty in accessing credit insurance. Many companies have recently lost their cover and are ending up with stock that they cannot sell. Business needs good regulations and fewer of them to cap the burdens of red tape. While we must avoid a return to central planning or bail-out of failing industries, the Government have a role to play and it is time for them to play strongly.
	To conclude, the UK still has a manufacturing base of which we can be proud. The Government have taken steps to address some of the short-term challenges that we face, but issues still remain. Manufacturing must continue to play a key role in the economic future of the United Kingdom. It is high time that the Government listened more to the people who run manufacturing industry.

Lord Marlesford: My Lords, I was delighted when the Minister made a most important announcement in his speech. I shall quote his words with precision, because they are so important. He referred to,
	"nuclear power and other renewables".
	The last time a Minister admitted that nuclear power is a renewable was when the noble Lord, Lord Sainsbury, said it, but he was made to renege. However, the noble Lord, Lord Mandelson, is much too powerful a figure to be made to slide away like that.
	I suppose that my problem is that I spend so long observing politics that I do not really do party politics, which has always enabled me to be rather a fan of the noble Lord, Lord Mandelson. He strengthens and enlivens any Cabinet that he joins, however briefly. I salute him for being the main architect of new Labour. Years ago someone asked me, "What is this new Labour thingy?". I said: "It is very simple. It is a Labour Government with a Conservative Prime Minister". Unfortunately, things may have changed since then.
	How the mighty have fallen. There can be few whose reputation has fallen quite as far and as fast as that of Alan Greenspan, chairman of the Fed for 19 years, to 2006. When I read his autobiography, The Age of Turbulence, published three months before the sub-prime bubble burst, I noted that he said:
	"I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk ... But I believed then, as now, that the benefits of broadened home ownership are worth the risk".
	What a misjudgment.
	At any rate, Mr Greenspan had the grace to apologise. On 23 October, in congressional testimony, he said:
	"I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works".
	The chairman, Henry Waxman, said:
	"In other words, you found that your view of the world, your ideology, was not right, it was not working".
	Mr Greenspan replied:
	"Precisely ... that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well".
	The then Chancellor of the Exchequer, Mr Gordon Brown, recommended that Mr Greenspan should receive an honorary KBE for his contribution to world economic stability—and he got it.
	As the realities of politics and economics crowd in, few of them lift the spirits. Overall, there is a deeply disturbing glimmer of recognition that for many the prosperity of the last decade is being revealed as a debt incurred for perhaps the next decade. The real problem is a widespread reluctance to face the realities which stem from the credit crunch.
	First, it is still not clear for many companies, including some which are widely regarded as soundly managed, what liabilities they face, whether as a result of toxic assets, underwriting commitments, hedging positions or cash flow problems, especially those companies—in the American auto industry, for example—which now find that demand for their products has evaporated. People are asking: how much more is to emerge? Secondly, consumers have about-turned, and as unemployment rises they will march ever faster in the new direction. Thirdly, businesses will not invest, even if they can raise the funds to do so, unless they can see a profitable result from their investment—a point made earlier by the noble Lord, Lord Skidelsky. It is, as my noble friend Lord Wakeham said, only in marginal cases that interest rates are really a relevant consideration. Fourthly, the housing market will not recover until house prices have fallen to a level at which buying a house makes sense. House values are already well below the prices of the few houses that are still being sold. Fifthly, stock markets will not recover until there is a prospect of profit growth. Sixthly, and finally, exchange rates will continue to trend towards relative purchasing power, although sovereign solvency could become an overriding factor. I was interested that reference was made to the solvency of Ireland and Iceland, which I am afraid could be at risk.
	The distinction between a recession and a depression is not precise. It is a matter of degree and how long it lasts. We now know that, in the US, the recession started in December 2007, only four months after the sub-prime bubble burst. What is clear is that the psychology of the consumer has a lot to do with it. Consumers do not understand economics, and they do not trust politicians to know the truth, let alone to tell it. They do listen to what they hear and they do observe what they see, and although they may react to everything to a small degree—special offers in shops may induce them to purchase, while rising electricity prices may encourage them to switch off the lights—it takes a long time and a lot of bad or good news to make them change direction. That lag is always underestimated by Governments, economic pundits and central bankers.
	I want to refer particularly to one other area of risk: credit card risk. It has already been referred to by the noble Lord, Lord Broers, who made the most interesting references to some aspects of electronic supervision. We need a completely new approach to the regulation of credit cards, and we need in particular to establish a national database of credit card holders. Far too many people are given credit cards that for their own good they should not have. But credit card debt is also, of course, a wonderful way of enabling the banks to charge very high rates of interest. The APR is always quoted, but most people do not have the slightest idea what that acronym means. It should be a requirement that the actual percentage of interest is made clear. Customers should be told, "This is the rate of interest that you will pay". I have with me an invitation to take up a loan which arrived just two days ago from an outfit called Provident Personal Credit. At the bottom it states: "Typical APR 189.2%". That is not going to encourage anyone who understands what it means.
	I want to make an optimistic point. The biggest plus in the world economy at the moment is the fall in oil prices. It is the equivalent of a big tax cut. How long it will go on for, I do not know. The Saudis would like to see the price go back to $75 a barrel, but the drop has been a huge benefit and we have to hope that market competition means that the reduction is passed on to consumers as rapidly as possible. It is far greater than a lot of what the Chancellor has done.
	I am afraid that I would diagnose Mr Darling as suffering from lagophthalmia. I do not expect everyone to know what that is. It refers to the vision of the hare which, although an interesting and charming creature, cannot see in front of it. As my noble friend Lord MacGregor pointed out, it is mad to cut VAT by 2.5 per cent—a great cost—when the shops are cutting prices by 10, 15 and 20 per cent. I hope we will recover. I believe that the capitalist system, with its technological vigour, will in due course come to the rescue of the world economy.

Lord Low of Dalston: My Lords, I have not had the pleasure of listening to a speech by the noble Lord, Lord Marlesford, before, but coming in at No. 25 on the list, it was an absolute delight and I hope that I have the pleasure of hearing him many more times. I was not able to attend the debate on the economy held on 3 November because I was in Weimar watching a performance of "Götterdämerung", which your Lordships may consider a not inappropriate backdrop for contemplating the current economic situation. I am therefore glad to be able to part in the debate today.
	I do not apologise for straying from my usual territory of social policy and mixing it with the big beasts of the economy in your Lordships' House. The global economic turmoil is, after global warming, the greatest challenge facing mankind today. I am not an economist, but it seems incumbent on us as concerned citizens to come to some understanding of what is happening and what we need to do about it. Taking my cue from the exceptionally authoritative speeches delivered by the noble Lords, Lord Layard and Lord Skidelsky, although with much less expertise, I want to enunciate a number of propositions which should command general assent, give or take a few points of detail, in the interest of developing a common understanding and a framework for collective action. It would be unrealistic to suppose that we could take the economy out of politics—we might as well take the politics out of politics—but some themes are emerging around which it should be possible to pull together.
	In a recent lecture, the noble and learned Lord, Lord Howe of Aberavon, spoke of the 30-year timescale against which major shifts in our thinking about the economy are measured. We are now at one of those watersheds, this time marking the end of a phase of unrestrained free-market capitalism. We have been working up to this for some time, of course, and it is tempting to understand it in terms of corporate greed; think of Enron. But it is also systemic in that the accumulation of massive reserves of foreign exchange in emerging markets brought interest rates, and hence the return on conventional investments, down to historic lows. Financial institutions lobbied for deregulation to enable them to deal in ever more complex securities in search of higher yields. Borrowing was cheap and banks borrowed heavily to fund their investments and leverage up returns. On 3 November, the noble Lord, Lord Lawson, spoke of a Gresham's law of lending whereby imprudent lending drove out prudent lending as banks sought to protect their market share to the point where the process collapsed under its own weight. So we have the proverbial race to the bottom, which does not just operate between banks in the same street but also between markets in different financial centres.
	But there has been greed. Something that has been insufficiently remarked upon, although the noble Lord, Lord Smith of Clifton, did touch on it, is the lengthening queue of class actions building up against major financial institutions for knowingly misrepresenting the state of their finances. Merrill Lynch has already made a multimillion-dollar settlement with the State of Massachusetts when faced with the state's evidence that the company had sold it supposedly super-safe products which collapsed the minute the credit crunch arrived.
	There is also a 75-year timescale which measures the time it takes to forget the lessons we have learnt in the past. We have been here before, and the Glass-Steagall Act was passed in 1933 to make sure that commercial banking was kept quite separate from investment banking, to prevent a recurrence of precisely the kind of crisis we are experiencing today. That lesson needs to be relearnt in a way that cannot be forgotten in the future.
	That is the background, and here are my propositions. First, we need an inquiry, and I would include in it issues of corporate governance, to which the noble Lord, Lord Smith, referred. We understand what has happened in general terms but we need the ethnographic detail. On 3 November, a number of noble Lords thought they heard the Minister commit to a full public inquiry. I was not so sure. It would be good if the Minister, when he winds up, could confirm unequivocally that the Government are committed to such an inquiry.
	Secondly, we need to strengthen regulation, especially banking supervision. In particular, we need to ensure that the core banking system is strong enough for non-core institutions to be allowed to fail if they act imprudently to avoid costly moral hazard. Regulation needs to be internationally co-ordinated and we need to avoid a lurch from too little to too much regulation in order not to stifle all initiative, which is at the heart of the dynamic economy.
	Thirdly, we will need to ditch the economic policy paradigm of the past 30 years. On 3 November, the noble Lord, Lord Smith, said that he did not know which economic thinker was likely to be in the ascendant going forward but that it was unlikely to be Milton Friedman. I would say that Keynes was probably due for a revaluation. The noble Lord, Lord Desai, surprisingly, continues to pin his faith on free markets. That is all very well in normal times—I have said that we do not want to regulate the market to the point of stifling initiative—but in times like these, if we leave everything to the market, we risk killing the patient before the cure kicks in.
	Fourthly, the role of the state needs to be reappraised. Social democratic interventionism would appear to be the paradigm of choice for the circumstances in which we find ourselves.
	Fifthly, as Gavyn Davies said recently, a number of players bear some responsibility for what has happened but the important thing is to understand, not play the blame game—although, of course, I exempt from that anyone found guilty of fraud. The action taken by the authorities in being much more interventionist sooner has probably ensured that a 1929-style depression will be avoided. The level of public debt is sustainable in the short term, especially as we enter a recession. As Peter Morici of the Maryland School of Business said recently, economists, both on the right and the left, admit we need a stimulus package and "a darn big one". Anyone who says otherwise risks being ranked along with Herbert Hoover. But, again, it needs to be co-ordinated internationally. Will it work? The jury is out. There is still a great deal of de-leveraging to unwind; more may be needed. But we can safely pump more money into the system, certainly in the short term, while the banks are still not lending. If we do not, there may not be a long term.

Baroness Hollis of Heigham: My Lords, I should like to follow up on some points made about savers. In the UK, unlike in Europe, our homes and our pensions have been our savings. With full employment, that has been a sensible way to distribute income from working years to retirement; it is not sensible when, as now, you need those savings to cope with the financial turmoil of the next few years, debt, repossession, unemployment and, sadly, probably family disaster. We have to rethink pensions.
	Pensions have been designed by men in 40-year full-time waged work for other men in 40-year full-time waged work; they simply do not fit the lives still of most women, the finances of the low paid or the expectations of the young. Think of their features. DC schemes require you to start young and save continuously even though half of all women stop pension contributions when they have children. Men do not, of course. You are expected, on a rising income, to put sufficient aside, yet women's earnings peak at about 30, men at 45. Even with personal accounts, contributions have to be very low to be affordable—and thus attractive—if they are not accessible because they are locked away, but then they may not spring you off income-related benefits, which makes their return less attractive still.
	Above all, industry tells us that pensions are locked away for 40 years even though most women and many men will today suffer far more financial turbulence during their working lives than in retirement. People need both rainy-day savings and a pension. If they are low paid, they cannot usually afford both and so, conflicted, they often build neither. I fear, alas, that the savings gateway will not help much.
	The answer to this seems to have come from the party opposite—although it has lost it since—and that is the lifetime savings account, LSAs. Other countries with funded OPSs have versions of LSAs—in the US the 401(k)s, the KiwiSavers in New Zealand, and others in Singapore, Chile and so on. The recent Pension Policy Institute paper, Would Allowing Early Access to Pensions Savings Increase Retirement Incomes?, discusses these, together with my own proposal to use the tax-free lump sum. Think for a moment about our current arrangements. At the moment, you may draw your 25 per cent tax-free lump sum at 50, soon to rise to 55, independent of drawing your pension. Only 14 per cent of people use that lump sum to add to their pension. It goes to repay debts or the mortgage, or to buy a new car, a new conservatory or a cruise. Why not remove the time bar? What really is the point of ideologically and rigidly reserving the lump sum for a pension when it is not used as a pension? Why is it okay to spend it on a car at 55 but not to use it to save your home at 45?
	Why not permit anyone reaching a de minimis in their pot of, say, £10,000 or £20,000, to ensure the savings habit, up to a cap of, say, £80,000 or £100,000, to avoid fancy tax planning, to draw down that 25 per cent as they need it? On £40,000 they could take out £10,000, and only if they rebuilt to, say, £60,000 could they then take 25 per cent of that increment—that is, a further £5,000. At a stroke, this would transform DC pensions into what they need to become—LSAs, simple, single funds combining savings and pensions, with 75 per cent ring-fenced for the pension and 25 per cent available as savings and, as it is tax-free, no tax adjustments would be necessary.
	I fear my noble friend may tell me four things: first, that tax privileges are for pensions only; secondly, that it is unfair to DB schemes; third, that it diminishes the value of final pensions; and, fourthly, that it is costly, complicated and too much trouble. If that is the way his argument is going to go, let me address those issues.
	Tax privileges only for pensions? Not when we have ISAs and A-days allowing the affluent to turn tax-privileged savings into tax-privileged pensions but not allowing the poorer off, who cannot afford ISAs, to turn some part of their pensions back into desperately needed savings as their lives possibly crash around them.
	Unfair to DB schemes? Given that DC schemes halve the contributions from employers while laying all the risk on employees, rebalancing would be decent. Diminishes the value of a final pension? Only if that money would have been spent on a pension, and it would not be. It takes value out of a pot's build-up? Legal and General's recent research shows that 42 per cent of those with a pension would save more, and that 42 per cent of those without a pension would start one, if they could access part of it. More would save and they would save more. Technically, it is no more difficult than tracking GMPs or deferred payments now.
	Such a scheme would reduce opt-out rates after 2012, including from personal accounts; encourage more people to contribute and to contribute more; assist with home buying, job retraining and avoid repossessions; displace expensive commercial loans, freeing up income thereby for further saving and producing a virtuous spiral; and appeal to women facing financial crises, young people who refuse to lock savings away for 40 years and the low paid, who cannot afford high enough contributions if they remain inaccessible. They would then have what we all need: security in retirement sustained by savings for today's world. My noble friend probably knows more about pensions than anyone in this Chamber. I beg him to think out of the box. What do low-earning people face? Financial turbulence greater now than in retirement. What do they need? Access to savings. What savings do they have? They are in their pension fund. What will it cost the state? Virtually nothing. Would it encourage them to save more? Almost certainly. Helping to keep people afloat in their working years really is the best, and probably the only, way to ensure that they have a pension in retirement.

Lord Patten: My Lords, I shall continue, albeit I suspect not seamlessly, the exact theme of the noble Baroness, Lady Hollis of Heigham, as though it had been choreographed by the Whips' Office, which decides who should follow whom. My words are to deal with those who are on the other side of the picture—savers—from those on whom she quite properly concentrated; that is, some who are in difficulty and the position of women in particular. I do so declaring my financial and business interests as listed in the Register and noting the forthcoming banking Bill, due for Second Reading soon in your Lordships' House.
	I shall discuss only savers and the plight of some of them in relation to our present economic affairs. In doing so, I should inform the House that I have never had, nor do I intend to have, any active role professionally in fund management provision, from the pitch of which the noble Lord, Lord Myners, had the great good sense to walk away some years back in rosier times. I particularly welcome his presence in the Government—I say that in a bipartisan way—as someone who understands these matters. We should all listen with care to what he says. That is enough compliments.
	The deserving saver, rather like the deserving poor in Victorian England, faces a terrible prospect as we move from what the profession of economists—for once ungloomy, momentarily cheering up—taught us to think of as the great moderation or the age of Goldilocks economics. Beware, my Lords, of cheerful economists. It seemed then that people could save their bowl of porridge and eat it as well. Spending did not have to be sacrificed to build up savings as the seemingly unending spiral of house and other asset prices underpinning it created a cosy sense that most people were saving enough.
	Today, the picture is suddenly very different. Savers, in particular older pensioners, face a nuclear winter of declining returns as interest rates race to the bottom. That is a fact of life for older pensioners in this country. As one of pensionable age murmured in my hearing the other day, "Look, my taxes are now being used to bail out the high-street banks at a cost that my children and grandchildren will have to pay off"—a situation going on as those interest rates race to the bottom. "Now I also face the prospect, like the Japanese did a few years back, of maybe having to pay a fee to the same banks for simply parking my cash in their safes as well".
	For anyone who has been a hard working saver, determined to stay solvent rather than following the "spend now and pay much later than you thought was necessary" policy that, alas, has been new Labour's drumbeat since 1997, the price of personal prudence has been terrible. However, with the United Kingdom generally in such a terrible mess, we have to try, where and when we can, to pull together to get us out of it in a bipartisan way if at all possible.
	In that spirit, I have three short-term suggestions for the Minister for what could reasonably be done by the Government, as they struggle to deal with a liquidity crisis that could easily turn into a solvency bombshell for our banks if property defaults take hold this year and next in the way in which some fear they might—that is coming down the track.
	The first is to recognise the urgency of the need, while present market conditions continue, to suspend the rule that those with pension funds must buy an annuity by the age of 75, for just as the funds of an individual or couple who have pursued the most risk-averse investment strategies available have lost a huge amount of their value—30 per cent, 40 per cent, 50 per cent or more—so will their pension prospects take a commensurate hit under the present annuity regime. That is a cruel demographic penalty imposed on those who happen to have been born in the early 1930s. It is hardly fair, and fairness is one of those matters which the right honourable gentleman the Prime Minister said he wished to make central to his legislative programme this year.
	Secondly, I hope that the Government, supported by all opposition parties including my own, will regularly reassure those who are carrying on saving for their pensions that the tax treatment of those pensions will not change; in other words, that they will carry on encouraging people to continue saving in difficult, adverse and challenging conditions. Such reassurance matters. The Minister may wish to recognise that the general public sometimes believe what politicians say, particularly when politicians of all parties say it more or less at the same time in the same way. That is a commitment that I look forward to from both him and my noble friend Lord De Mauley in his speech.
	Thirdly, when money put into gilts, cash or money-market funds yields such pitiful returns at the same time as good companies need that cash, we need to encourage people to think about investing more in shares and corporate bonds, having assessed the risk not just of doing it but of not doing it. My noble friend Lord Tugendhat, who is momentarily not in his place in front of me, said more than I need to say about the pressing need to raise the cap on ISAs. It has been stuck at £7,200 for too long; £10,000 would be a good starting place, just to give that signal to people that we collectively in the political community wish them collectively in the savings community to continue saving.
	I think that there would be bipartisan support for those three modest measures, but it is a bipartisan approach that should be encouraged by political realism—the fact that there are more savers than borrowers in this country. It is the savers who tend to belong to those age groups from which the voting classes come and turn out on polling day to vote. Anyone who ignores savers in the run-up to the next general election will reap their own electoral whirlwind.

Baroness Sharp of Guildford: My Lords, the department whose affairs I shadow—namely, the Department for Innovation, Universities and Skills—has been rightly grouped among the departments to be considered today, because the issues with which it is concerned are central to the competitiveness of the British economy. Indeed, in setting up the new department in July 2007, the Prime Minister said:
	"The new Department will be responsible for driving forward delivery of the Government's ... vision to make Britain one of the best places in the world for science, research and innovation, and to deliver the ambition of a world-class skills base".
	I shall talk today about those two issues: science and technology, and the skills agenda. Both are marked by requiring upfront investment, especially investment in human capital, before the benefit from that investment can be reaped.
	As with all investments, the temptation in a downturn is to economise and to cut. What is not essential today can be put off until tomorrow. My plea to the Government and to business is to recognise how important these investments are to our future competitiveness. Britain now has to live by its brains, not its brawn, a point made by the noble Lords, Lord Rooker and Lord Bhattacharyya. If we fail to make these investments, our ability to hold our own as we emerge from this recession will be much damaged. The noble Lord, Lord Marlesford, was correct in saying that capitalism can be, and has been, saved by the enterprise and technology of this country, but it cannot be saved if we make no investment in it.
	In relation to science, the strategic framework for science policy was set by this Government in July 2004 in their 10-year framework for investment with a target of reaching a public and private investment in R&D of 2.5 per cent of GDP by 2014. We are now nearly halfway through that period, but, sadly, we are no nearer reaching that target in relation to gross expenditure on research and development. We hover around the 2 per cent mark. To my mind, the Government have done their part. They have fulfilled their promise. Funding of the science base through the research councils has, to date, been given priority, and even in the last Comprehensive Spending Review maintained a real growth rate of 2.5 per cent. Here I pay tribute to the noble Lord, Lord Sainsbury, who for much of this period was the Minister for Science and drove much of this programme. I very much hope we shall see this rate of funding maintained through the period of the next CSR, 2011 to 2014.
	I have three specific questions for the Minister. First, the weak link is private sector R&D, which has not responded to a regime of generous tax credits and remains stubbornly at around 1 per cent, even for the prosperous years of 2005 to 2006. The great danger is that in this deep recession we shall see substantial cuts in funding. What steps are the Government taking to prevent this? Secondly, while the Government have increased their funding for the science base, they have cut back fairly savagely on R&D spending by government departments themselves. In addition, R&D budgets for departments have been raided on a number of occasions. The BERR budget was raided for £68 million to fund retraining and redeployment at Rover. The Defra R&D budget, vital to our climate change challenges, was raided to pay for the disastrous mistakes made in the new agricultural support programme. Can we have an assurance that this will not happen again? If the Government do not give priority to R&D, how can we expect private industry to do so?
	Thirdly, I draw attention to a brief debate that we had on 25 November on the new immigration regulations that came into force on 27 November. If the Government really wish to make Britain one of the best places in the world for science, research and innovation, they need to undo at least some aspects of these regulations. It is absolutely absurd that universities now have to find a third-party sponsor for all visiting researchers and are expected to undertake lengthy bureaucratic checks. Our long and proud tradition of welcoming scholars to this country, to share their research with our own scholars, has many benefits and this is now in jeopardy. I hope, again, that the Minister can assure us that we shall rapidly see the end of these absurd rules.
	I turn briefly to apprenticeships. The noble Lord, Lord Mandelson, said that the children, learning and skills Bill, which will come before this House later in the Session, provides that every young person who so wishes should be able to make use of an entitlement to an apprenticeship, and puts the onus on local authorities to find places for those who wish to take up this entitlement. In an excellent report on apprenticeships from your Lordships' Select Committee on Economic Affairs a couple of years ago, it was stated:
	"Apprenticeship should be established as the main route to skills below graduate level. It should be the standard method for a combination of work and learning to contribute to the Government's goal that all young people aged 17 and 18 should participate in some form of education and training".
	My response to that was very much "hear, hear". Yet while the Government are establishing this entitlement to an apprenticeship, they are far from establishing it as the standard method of combining work and learning. Rather, they have muddied the field by launching, at the same time, the new 14 to 19 diplomas. These 14 different sector lines in areas such as health and social care, engineering, construction, communication and media studies, as explained by the person now in charge of them at the DCSF,
	"will not make a young person work ready",
	but are nevertheless aimed at those who,
	"want to combine practical and theoretical learning".
	They will learn about the world of work but gain very little practical experience. The minimum requirement is 10 days' work experience.
	Meanwhile, the extremely popular and successful Young Apprenticeship programme remains only a pilot and there are, as yet, no clear lines of progression from the diplomas to the post-16 apprenticeships. It makes for a difficult choice for 13 year-olds and their parents. Do they stick to the tried and tested, but often dull, GCSEs? Do they go for these new diplomas, which talk about the world of work but give little actual experience? Or do they opt for a young apprenticeship, which will guarantee them a route into an apprenticeship?
	If we are to emerge from this current recession with the capacity to compete within the global framework, the skills of the workforce and their ability to innovate and benefit from developments in science and technology will be crucial. This has been understood by this Government for a long time and they have introduced—and continue to introduce—many changes aimed at ensuring that we reap these benefits. I am not alone in thinking that perhaps they have introduced too many changes and failed to allow those that they have made to take firm root. These diplomas are another example. This recession will, in many senses, be an acid test of whether this is so.

Lord Sawyer: My Lords, this is a short speech about customers. It is about how we might be able to give people the opportunity to speak for themselves and not always be spoken for by experts and people who sometimes seem to know better. I declare an interest as a non-executive director of Britannia Building Society, although I obviously do not speak on its behalf, or on behalf of any other organisation. I was pleased that the Chancellor recognised in his pre-Budget speech that mutuals provide a valuable alternative to banks across a range of financial services, and that the Government are committed to growth and efficiency in this sector. Sadly, the growth and efficiency could be jeopardised by the application of the financial services' consumer credit scheme, which places unfair and disproportionate burdens on mutuals in requiring them to provide punitive levels of compensation for banks which have adopted imprudent—and often reckless— business models. I seriously and earnestly ask my noble friends on the Front Bench to look again at the figures in order to give mutuals the opportunity to benefit, as they quite rightly should, from their own careful and prudent behaviour.
	I will comment briefly on two further issues, both relating to banks and their retail customers. Despite the best efforts of the FSA, I do not believe that banks treat their customers fairly. There is a substantial body of evidence to support that contention, from a long history of poor product provision to an equally long history of overcharging and of failing to pass on cuts in interest rates to customers. This is not a simple matter, but nor is it recent. Most interestingly, I draw the House's attention to a 2007 survey by the Building Societies' Association, comparing customer confidence in mutuals and other providers. This shows a much higher level of satisfaction with mutuals than with all other financial providers. This deficit in customer confidence, coupled with the failure of the business models adopted by most banks, has led, quite rightly and unavoidably, to a degree of state intervention on behalf of customers. I welcome this, and the way in which my noble friends on the Front Bench and in another place have handled this extremely difficult situation on behalf of customers.
	It must also lead to a completely new way of thinking about how banks are governed and managed and about their relationship with customers—and I really do mean a new way of thinking about it. We need to think about a situation in which customers are seen as people not only to be treated fairly but to be respected, listened to and empowered to have a real and direct say in how their banks are governed. I am talking not about fairness but engagement—about customer empowerment on a scale and in a depth that banks have not yet considered. I am looking for our Government to listen to that argument and be champions of customers in that respect. That will mean much more than marketing, branding or focus groups; it will mean the real adoption and adherence to values and systems that give customer direct access to and engagement with directors and managers of their banks.
	I know that can be done because, in many parts of the mutuals sector, those values and that respect are standard practices. When customers are owners, they are given a very different model of customer engagement. For example, in the Britannia Building Society, there is a council of members with 24 customers who meet for a whole day at least four times a year and engage with the chief executive and his team on any matter that concerns them. The agenda is determined by the customers. There is nothing off limits—so much so that the council of members entered into a dialogue last year with the remuneration committee of the board of directors to discuss face to face for several hours the executive remuneration package. In fact, it approved the package, including the introduction of a long-term incentive plan. That was an outstanding and worthwhile level of engagement, which was applauded and welcomed by leaders of business—and it was also a massively important degree of engagement for the customers. That is the sort of practice that we should talk to the banks about. There are other examples in the mutuals sector, which I could talk about, but I shall leave it there.
	The second thing that I want to touch on briefly is corporate governance, which has been mentioned in the debate already. We need more diversity on the boards of banks. Directors of banks are mostly financial experts, bankers and accountants. All those people are extremely important—why would I say otherwise?—but there is an argument for including people who do not come from that sector and who would bring a different point of view, common sense and clear judgment learnt in other places.
	I am pleased to see my noble friend the Minister in his place, because I can tell a tale of when he, as Secretary of State for Industry, made the bold and imaginative decision to appoint a non-executive director to the Royal Mail board who was to have a special interest in representing employees. That was not exactly looked on with great favour by all the traditional members of the board, but that appointment, which is now held by my noble friend Lady Prosser, has turned out to be an outstanding decision. The contribution of those members to the board is universally acclaimed by all the business leaders, from Allan Leighton downwards. The noble Baroness brings diversity and a way of thinking that is different from that of all the traditional board members. I ask my noble friend the Minister to consider that great success and whether there may be opportunities in the banking world for people to look at and digest that experience and how it might relate to them.
	Finally, given the enormous challenges and responsibilities faced by the FSA in relation to its role as a regulator, I wonder whether there might be some sense—and others would know better than me about this—in looking at the separation of its role as a financial educator and customer champion, which is very important, and its role as a regulator. Regulation and customer protection are two very different things and probably require a set of very different skills. As this is going to be a growth sector and there will be a lot more of this in future, would some degree of separation not be worth considering?

The Earl of Caithness: My Lords, if, as the gracious Speech states, the overriding priority is to ensure the stability of the British economy, reform of the banking system is essential. Regrettably, the Banking Bill that we will soon discuss in this House is the wrong one to sort out the problems that we face.
	We in the West are accustomed to going to the bank when we need money, and until recently money has been relatively easy to obtain from banks. Of course, we are all aware that if we fail to make our payments on time, banks can foreclose. Some, who believed they had a good relationship with their bank, have recently had a rude awakening. Banks and bankers have little tolerance for people who find themselves in arrears, even though it might be through no fault of their own. Banks often don a cloak of aggressive righteousness and take immediate and detrimental action against those who come to them seeking help. Those facing difficulties can easily find themselves wondering whatever happened to that smiling and friendly banker who wanted to lend them money. He is the same one who is holding up the interest rates that he charges borrowers while the Bank of England lowers the rate that it charges banks.
	On the other hand, when banks themselves are in difficulty, they expect Governments and taxpayers to behave generously toward them. They bleat about their innocence and claim they are victims of a world-wide crisis which is not of their doing. Nonsense! Toxic assets did not just appear in their balance sheets by magic. They were high-yield investments approved by the banks' management and purchased willingly. They are not innocent bystanders, yet they want central banks, Governments and taxpayers to behave in a far more generous manner than they do—and we have to because, if we do not, the entire banking system might collapse and we will all lose our deposits.
	Why are we in this position? Simply because we in the West have become almost wholly dependent on debt finance. Banks are the custodians of our money and lending is their business. When we need money, we go to our banker and he lends to us. We have become accustomed to borrowing. We borrow to buy things we would like but have not yet saved for. Besides banks, we borrow from shops and on credit cards. Borrowing has become a way of life for so many of us. Business and economic cycles are a product of our present way of life, to which we have become addicted. These cycles of boom followed by bust arise and are perfectly natural by-products of our reliance on debt finance.
	Furthermore, bank lending is the principal producer of inflation. When a bank lends money to a client, it deposits money into its client's account. Thus, total deposits increase. The money supply is the sum of total deposits and cash in circulation. Therefore, the money supply increases, causing inflationary pressures.
	We have embraced a debt-based monetary system because banks lend depositors' money rather than simply storing and distributing it for them. They can lend it because when we put our money into our bank account, the instant it enters the bank, title to our money is transferred to the bank. The money then belongs to the bank and not to us and we are no more than unsecured creditors of that bank. Secured creditors have first call on what many still believe is their money in their current accounts. But it is no longer their money. The money belongs to the bank and it can then gamble with it if it so chooses. To my knowledge, there is no specific law which authorizes this transfer of title. Can the Minister confirm my view? Although he is not in his place, I welcome the noble Lord, Lord Myners. It is the first time I have spoken in a debate with him. It is good that there is a second Treasury Minister in this House, for I think the first time in 19 years.
	It seems that the banks have been getting away with removing money from depositors' accounts and lending it for so long that the law of precedence now applies. Perhaps because what they have always done is now legitimate, the prudence and circumspection which previously was always the hallmark of respectable bankers—so that depositors would not suspect that banks might be removing money from their accounts and using it to earn interest for themselves—seems no longer to be necessary. Now, to our horror, we have discovered that what banks call loans or investments are proving to have been some very big gambles indeed.
	The net result of all this imprudent behaviour is that too many in the West have now reached the point where their levels of debt are too high and few people, businesses and Governments can continue to borrow more. Yet the only solutions on offer to our current economic slowdown seem to be to encourage everyone to borrow more. Monetary and fiscal policies are now wildly loose. Financial experts, economists and self-appointed opinion-formers are all calling for lower interest rates to encourage more to borrow. I suspect that lowering interest rates will not work this time. There is simply too much debt in the system. While some may be able to borrow a bit, they will soon reach their limit and western economies will be back in the doldrums again. Governments themselves are now so dependent on debt that, in competing with each other for funding, they will be the prime force driving up interest rates. Our own Government need to sell £150 billion of debt in each of the next three years—more than triple the recent annual average. These government-driven increases in interest rates will place more strain on those who have borrowed to the hilt, and more businesses will fail, leaving Governments with less income and greater expenses.
	Contrary to those who fear deflation, I am confident that we are more likely to experience stagflation. The Federal Reserve bank in America has now created $8.2 trillion of new money in its attempt to bail out the banking system. The Bank of England has created more than £1 trillion in its attempt to save our banking system. I agree with my noble friend Lord Higgins that these increases in the money supply will inevitably produce inflationary pressures. When these are combined with the current economic slowdown, we will have the classic conditions for stagflation.
	Let us be honest about the so-called success of these bail-outs. While they have stemmed the immediate collapse of the system, banks still face substantial potential sub-prime losses, losses from failures of derivatives and losses from credit card defaults and defaults of ordinary loans now being serviced when businesses cut back or fail. We need a new approach but I see nothing in the gracious Speech that heads in that direction. I introduced the Safety Deposit Current Accounts Bill in this House on 30 January. It was designed as a first step in leading the banking system to safety. Sadly, the Government were not remotely interested. Given what has happened in the past 10 months, does the Minister agree with Sir Ronald Grierson's letter in the Financial Times on Friday, which stated:
	"A bank is a bank and if the security of its depositors is not its main concern, it should be required to adopt another name. Members of the public are entitled to take this for granted".
	If the West is serious about fixing the system so that it will not collapse again, we need also to consider a massive conversion of debt to equity. If, as the noble Lord, Lord Mandelson, said when he opened the debate, the same mistakes are not to be made again, we and other western Governments must stop just putting a plaster over the cracks in our monetary system, and properly reform it. Without that reform, there will be another bust.
	A little before Gordon Brown boasted to us that there would never be another bust, I predicted in this House that the cycle would continue, but that next time we would start deeper in debt, with a burden harder to carry. I make the same prediction today. Unless we change our banking system, we will leave our children and grandchildren a legacy that I doubt they will be able to overcome.

Lord Cotter: My Lords, today we get the chance once again to address the issue of business and the economy. We have had much activity in recent weeks, with Statements, the Pre-Budget Report and the Queen's Speech; but still there is much to do in a continuing scenario. I will concentrate on the small business sector, which provides six out of 10 jobs. My whole working life outside Parliament has been in that sector. Business needs work, a job to do. But small business also needs a fair chance. The Government still have much to do.
	One in five small firms is spending more than 10 per cent of its annual turnover on energy costs. Utility bills have become the second biggest expense for companies. There has been a concentration, rightly, on banks; but recent surveys have shown dissatisfaction with energy supply within the business sector. None of the big electricity companies received even a "satisfactory" rating in a recent survey of more than 2,400 small firms. There are complaints about costs: prices go up but take a long time to come down again. There are many examples of inaccurate billing, infrequent meter reading and pressure for payment even when errors have been made. Complaints to utilities are often dealt with poorly. This adds to the pressure on struggling businesses. The Government have called the banks together. I hope that they are doing the same with the utilities.
	In the past few days, a report from the OECD showed that in October British energy bills rose at the fastest rate of any EU nation—by twice as much as the second fastest rate in the EU. We have seen great competition day by day at the petrol pumps among those delivering petrol to the consumer; but in the energy field, not so much.
	The Queen's Speech was light in many respects, and in others somewhat concerning. Under the latter heading I would place the Business Rate Supplements Bill, which many see as a burden on small and medium-sized enterprises. The British Chambers of Commerce, along with other small business organisations and we on these Benches, are concerned. It does not seem to be a good time to introduce an additional cost for businesses that are struggling to survive in a time of economic crisis. Business rates are seen as a big burden for small businesses. I refer to our small shops sector in particular. Small shops provide much employment and are vital to local communities. That is why this year I introduced my Retail Development Bill, which has passed through this House and is being supported by the Federation of Small Businesses and many other small business organisations. One of the Bill's main proposals calls for the Government to implement an examination and assessment of the proportionate costs of business rates on small shops and large supermarkets. It is said that small shops can pay anything from 15 per cent to 35 per cent of their money on rates, as opposed to 5 per cent for supermarkets. I hope that Ministers will look at this with urgency, and at least, as an interim measure, re-examine rate relief schemes for small, local shops.
	A government Minister recently called for business to use this difficult time to provide training opportunities for the workforce. It is a very welcome idea; better to do something than nothing. I respond by saying that the Government are going to introduce the education and skills Bill, which will provide a statutory basis for the apprenticeship programme referred to by the noble Baroness, Lady Sharp. Apprenticeships are vitally needed and, as I have said previously, it is crucial that small businesses get genuine financial help to enable them to carry on the apprenticeships scheme.
	There is a continuing need in business finance for support from the banks. There is much still to be done. However, I was encouraged to hear from Lloyds Bank—the Minister referred to this—that it is stepping up lending to small businesses. This is something that I have confirmed through my local commercial department of Lloyds Bank in Weston-super-Mare. I hope that this trend is maintained, and that other banks follow suit.
	Payment of bills is vital. This has been raised before, and I hope that the Government are monitoring their welcome commitment to payment within 10 days, and also ensuring that this payment practice extends to all government agencies and departments.
	It must be emphasised that many firms need help to understand money and finance. The Association of Chartered and Certified Accountants points out that a large proportion of small businesses lack skills in this area. The ACCA has called for support and mentoring. I hope that the Minister will recall his announcement of 22 October on assistance for small businesses in which he talked about advice being delivered through Business Link. I again put to the Minster the concerns out in the wider world that the Business Link service is variable. In some areas it is very good; in others, not so good.
	Financial advice is of key importance. I saw for myself as a Member of Parliament how banks can help small businesses to understand finance through seminars. I understand that such seminars are currently planned. I hope the banks can be helped or encouraged not to put a further burden on this sector, but to have seminars so that the key ingredient for business—understanding finance, and how to run businesses financially—is carried forward.

Lord Sanderson of Bowden: My Lords, I do not suppose that it is terribly popular to declare that for six years, up to 2004, I was chairman of a bank—not only that, but a Scottish bank. Fortunately, it was the Clydesdale Bank, part of the National Australia Bank, which has a policy of prudence rooted in some terrifying experiences in the United States mortgage market 10 years ago. I am happy to say that last week's Clydesdale Bank results show good, firm cost control and strong credit management, leading to the most important thing for a bank: the confidence of its customers. In passing, let me say that I am glad that I am not the chairman of a bank in which the Government have now taken an interest, where they are demanding a 12 per cent coupon on their preference shares. That may be overkill when one considers the comparisons with Holland and France.
	I shall raise three matters with a bearing on today's problems: first, the regulation of banks; secondly, pensions; and, thirdly, savings. I trust that my own party may listen to what I am saying, looking to the future. In the case of Northern Rock, I wonder whether, if the regulator had been the one that I experienced—that is, all of us joint stock banks under the cosh of the direct control of the Governor and court of the Bank of England—this sad tale would have happened. I think not. I am not a believer in the regulation changes made to the banks in 1997, although I fully approved of the introduction of the MPC. I know just how tough the regime was in my time; the experience of the noble Lord, Lord George, and his team at the Bank of England was second to none and left very little room for us to have errors. I ask my party to revisit this matter in due course.
	Perhaps Lloyds TSB could have taken Northern Rock under its wing if it had been given enough notice. That might have prevented the sad sight of queues in Newcastle and a government bail-out. Personally, I do not believe that the three-legged-stool approach—the Bank of England, the FSA and the bank concerned—is the correct answer for the regulation of joint stock banks.
	On pensions, my time as chairman of the Clydesdale Bank pension fund from 2000 to 2004 was not enjoyable. No doubt the Chancellor of the Exchequer of the day wished to spend much more money on health, education and other deserving causes. However, removing ACT was not the way forward, as it completely destabilised our pension funds. We ran a good final salary scheme at the bank, non-contributory as it was, where all the employees were well provided for. This was blown sky high by the changes at the end of the 1990s and we had to move at a stroke to a defined contribution scheme, which is not nearly as attractive a situation for the employees concerned.
	What is the situation of pensions today, as has been mentioned earlier in the debate? The pensions industry is having a very difficult time. Recent estimates are that UK pension funds have a deficit of almost £100 billion, as one would expect when the stock market falls have been so enormous.
	One thing to help that the Government might consider would be to issue more long-dated gilts to help out pension funds which need to hold on to investments that match their liabilities. Recently, the Government stated that they would issue additional gilt sales of £34.4 billion in this fiscal year, but only £5.3 billion of these bonds will be long dated. I hope that the Minister might consider what I am suggesting as a helpful suggestion in these difficult times for pension funds and pensioners.
	Thirdly, on savings, the gracious Speech indicated that there would be a Bill incorporating savings gateway accounts. That is welcome, but it affects a relatively small number of people. It is not nearly enough for many people who rely on dividends and interest from their savings to see them through. Surely tax-free savings limits could be raised to help savers hit by these sharp falls in interest rates. In the case of shareholders in some banks—such as the Royal Bank of Scotland, Lloyds TSB and HBOS—no dividends will be paid in the coming year.
	Living on such a reduction in savings and investments will be devastating for many people. Surely savers could be allowed to hold more money in tax-free ISAs, as has already been mentioned, where there has been no increase in limits in recent years. An announcement on this issue would be a far more welcome Christmas present for these savers than the 2.5 per cent reduction in VAT announced in the autumn Statement.
	At a time when we are looking at unprecedented national indebtedness for the next few years, and a similar situation with personal debt, it is up to the Government to set an example by reining in unnecessary and unproductive government spending. The Minister gave us some hope of this in his opening address. Was it not the Prime Minister who said in 1993 that Labour must cease to be seen as the tax and spend party and, later on, that a rise in top tax rates would yield little? The inference is that it would lead to entrepreneurs being frog-marched out of the country. Yet he has allowed the Chancellor of the Exchequer to do just that: raise the top rate for certain people.
	Perhaps we should remember the old Presbyterian saying that was drummed into us as children: "Pay as you go and, if you can't pay, don't go". This is as true for Governments as it is for individuals. There must be a national return to the virtue of living within our means. Being overborrowed and overspent is a dangerous cocktail.

Lord Sheldon: My Lords, I shall refer briefly to the absence of a Civil Service Bill, which we have expected every time the Government have come into office. The Government have dominated the Civil Service. There have been 10 years of commitment to produce a Bill, but we have not seen it. In every Queen's Speech, I look for the legislation. Our Civil Service used to be assessed as the best in the world. It has become subject to the more powerful Governments, which is very sad.
	I turn now to the European Union, which has grown to be a large part of the economic world. Of these large parts of the world, there is China with its 6 million graduates, which will obviously be even more powerful than we had anticipated, there is India, there is the United States and, of course, there is the European Union.
	On 26 June 2003, Tony Blair referred to a referendum on euro membership before the next general election. This referendum is a problem that will need to be addressed in some way. My noble friend Lord Mandelson told the Labour Party conference that our goal should be to enter the single currency, before adding that the Government have no plans to move towards joining the euro.
	In 1957, we were the richest major country in Europe, but we decided to go it alone. In the following years, France, Germany and the Benelux countries overtook us. We are still trying to close the productivity gap. If once again we fail to join the European leaders, we risk falling behind them. Recently we have seen a depreciating currency. On 1 August 2002, an important document by Richard Layard—now the noble Lord, Lord Layard—entitled Why Britain Should Join the Euro, was published. The main purpose of joining the euro is to retain a high standard of living. In France, Germany and Benelux, the hospitals, schools and transport systems have higher standards than ours. We can achieve such standards only if we improve our efficiency by becoming a member of the European market.
	High unemployment in some European countries is not an argument against joining the euro. The argument that we should wait for unemployment rates to converge is like saying that the south-east of England should have its own currency. Nor does linking our currency to that of a high unemployment country such as France mean that we would risk higher unemployment here. The Netherlands has only one-third the unemployment of Belgium. Within the single currency area of Britain, the south-east has one-half the unemployment of the north-east. The link to the north has not increased unemployment in the south.
	To join the euro the Government have to recommend entry and there has to be a vote in a referendum. In addition, we have to agree with our European partners the date of entry and the rate at which pounds will be converted into euros. This rate is therefore a political decision. Once markets know what the entry rate will be, the current market rate will move close to that level, depending, of course, on how likely a successful outcome to the referendum is. The exchange rate was too high earlier this year and made Britain less competitive than it needs to be.
	In France, Germany, Benelux and northern Italy, productivity per hour worked is considerably higher than in Britain. This is true now and was true 20 years ago. Over that period Britain has failed to catch up with those other European countries despite all the talk about our superior economic system and the obvious scope for copying what others do better. Britain was Europe's only oil economy but the position there has declined substantially and the situation is rather different now.
	Belonging to a large single market should raise living standards through larger economies of scale. Europe is by far our largest market, taking half our trade compared with only 16 per cent with the United States. A single market and a single currency increase trade and eliminate exchange rate fluctuations. Now that the single currency is so much more prominent in Europe, we are in a more exposed position.
	Manufacturing activity has been shifting to the area of currency stability and there is some danger that the City's predominance in wholesale financial services will not be helped if Britain is outside the euro in the long term. Five years ago there were calls for a euro referendum. However, exchange rate fluctuations have increased as capital is moved around the world. For a medium-sized country such as Britain, such fluctuations are extremely damaging. We need to start considering our future relationship with the other European countries.

Viscount Eccles: My Lords, it is a great pleasure to follow the noble Lord, Lord Sheldon, because he clearly shows that there is a rich mixture of opinion in this House.
	We have not been much good at forecasting lately. I wonder how much confidence we can have in present forecasts. After all, the noble Lord, Lord Mandelson, says that we are in unprecedented times and then prays in aid his experiences in the 1980s. That is no more helpful than the false antithesis between those who want to do something and those who allegedly do not.
	During the build-up of the debt mountain the banks have been like children in a vast game of pass the parcel, storing away parcels of uncertain value and, when the music finally stopped, refusing to play with each other any more while they tried—unsuccessfully so far—to assess their losses, hardly daring, I suppose, to open many of their parcels.
	At the same time Asia, particularly China, was building its mountain of United States Treasury bills to offset $500 billion of annual trade deficit, which has been a second trend going unsustainably in one direction. Meanwhile, we were also building two smaller mountains, the first being household and personal debt, the second rising public expenditure—for example, the rising cost of public sector pensions, topped up with the largely off-balance-sheet deferred PFI debt, which will cost more than £180 billion to repay with another £70 billion of repayments in the pipeline.
	However, these irresponsibilities are not my theme. We are where we are, giving rise to the question: is there something so different about this crisis that past policies will not do what is required? Also, how are people reacting to the crisis and how will they behave? I hope we are close to an agreement that this crisis is quite unlike post-war recessions. The Pre-Budget Report recognises that action to stem inflation has usually triggered recession in the past 30 years or so. Inflation turns out to be irrelevant to this crisis. Nor did government action start it. Indeed, inaction bears the greater responsibility.
	The report also spells out the difficulties of forecasting. Such phrases about future credit conditions as "will return to a new norm", qualified further with uncertain timing, show that the draftsmen knew that the past is an unreliable guide to the immediate future. This must be right. Then there is the Treasury trend line for growth, which has been in recent years 2.7 per cent. The way in which this has been achieved has proved unsustainable. It has depended to a significant degree on financial services and they in turn depended on the global economy. Yet the Pre-Budget Report claims that this recession will be shorter than the past two and that we will promptly return to our trend line and, indeed, better it in 2011. This judgment is redolent with uncertainty, depending on events about which in the short term we know little and on the success of actions taken by many other influential players in the global market on whom we rely since we will not get out of this crisis on our own.
	It is too early to assess the degree of optimism built into the Pre-Budget Report but I do not doubt that it is overconfident in its predictions. It is, of course, the mention of confidence which leads naturally to the reactions and behaviour of people. What do people think? Few people are at all sure how this debt crisis came about. Not many people confidently understand derivatives, the securitisation of mortgages or the imbalances between Asia and America. They have been told that this is a global crisis started by the Americans, so presumably they will have to get us out of it again. With their healthy scepticism, people know that it is not sensible to expect their Government to be in control of global events. They were not able to handle the risks we were running and cannot now be expected to know either when or whether things will return more or less to the old norms or will move on in some quite different direction. It seems uncertain that the changes, which people are told will be good for everybody everywhere, are also the best for each and every United Kingdom household. Many people need to make decisions that cannot wait upon the renegotiation of global co-operation.
	There are other differences; it is not only the global dimension. The population is much older than it was in previous recessions. The elderly have to be careful with their money. The savings ratio, which was 3.5 per cent in 2006, is now 0.5 per cent and shrinking. As the Treasury says, we can expect that additional spending power, as from the VAT reduction, will go half into spending and half into saving. What are people to make of the 20 pages in the Pre-Budget Report entitled "Delivering on Environmental Goals"? Surely this means that they should consume less.
	Finally, nagging at many people will be the thought that it cannot have been 100 per cent the fault of the banks. If nobody looks to be sure to get us out of this crisis, we had better do as much as we can for ourselves. People are sure to wait to see what happens next. Will the banks strengthen their balance sheets? Indeed, how long will it be before they know the full extent of their losses? Will the moves to encourage spending make a significant difference, or will people and small businesses concentrate on saving? No one knows. We need more time to find out, at a time when we have been left with so little room to manoeuvre in our efforts to determine an outcome.
	Come the 2009 Budget, the forecasts in front of us now will demand revision. We will not be going back to where we were, but on to somewhere quite different, which will encompass social as well as economic policy; and we are not at the moment in control of the journey.

Lord Barnett: My Lords, I strongly support the case for a fiscal stimulus; that goes without saying. I am bound to say that I would not have used £12.5 billion of the £20 billion-odd pounds on a 2.5 per cent VAT cut. I have a long list of other things that I would have liked to have done, but I will not spell them out at this hour. Having spent so long, sadly, in my position as Chief Secretary having to cut public expenditure, I would have loved to have had the opportunity to decide how to spend £12.5 billion differently from the way that the Government chose, on VAT.
	However, the real question is whether the current fiscal stimulus will work. On that, I shall quote my favourite economist. With respect to my noble friend Lord Peston, I am not referring to him or to his son. I refer to Anatole Kaletsky, one of the few writers in the Times who I can agree with fairly regularly. He is worth quoting. He said:
	"JK Galbraith, the author of ... a book that Mervyn King ... has been recommending to all his visitors ... said that there are two kinds of economists: those who don't know what will happen and those who don't know they don't know".
	I don't know, and I know that I don't know. What everyone is doing these days is guessing—apart from the media, which is simply exaggerating any guesses. The plain fact is that the Chancellor had to make a forecast in his Pre-Budget Report. In his case, it is also a guess, but it is a Treasury guess. I cannot help thinking that his guess was just a little optimistic. On his forecast of figures, for this year—2008—it is not a guess, because we know pretty well what it is going to be. We will have two quarters of downturn, and even then the forecast is that we will have had growth this year of 0.75 per cent. The Treasury's guess for 2009 is that there will be a downturn of 0.75 per cent to 1.25 per cent. In 2010, the guess is that there will be growth of 1.5 per cent to 2 per cent. I hope that the guesses are right, but I suspect that that guesswork could well be wrong.
	Even if it is wrong—even if it is 1 per cent or 2 per cent worse—my friends are surprised when I tell them that in practice we have had steady growth every single year of the past 16 years. If we have a downturn of even more than the Treasury has guessed, it would not be the catastrophe or disaster that the media would have us believe. Most people do not hear that; they only read the media headlines, which is 90 per cent the pops—even the Times, which is even worse at times on its guesswork and its exaggerated headlines.
	Of course, whichever way we take the guesses, the situation is serious. It is particularly serious for those who are going to be unemployed, or for those businesses that are going to go bust in the next year. It will be very serious indeed. Apart from the fiscal stimulus, with which I strongly agree, bank lending is, if anything, even more important in current circumstances. I declare an interest as chairman of a small business and a major investor in it. My company does not need their money, as it happens. We are in the recycling industry, which is rather more growth-conscious than most. That is beside the point. Industry, and certainly small businesses, needs bank lending, and it is not clear to me how policies such as a statutory code will define where the lending should go. I had thought at one time, like the Opposition apparently are now proposing, that a guarantee to banks would be helpful, but you still have to say where you lend, and I do not see how a government guarantee of selective investing is going to be possible.
	My main point is how on earth are the government directors who will be appointed to banks going to tell the bank boards what they are going to do? Presumably, they will be non-executive directors. The current non-executive directors, on something like £200,000 a year, have hardly been doing the job that a non-executive director should be doing with the banks. I doubt if they even knew or asked questions about derivatives or off-balance-sheet figures. What are we going to tell the banks' new government directors to do as a strategy to help more lending? When they finish that, we are going to have very high borrowing, whether the fiscal stimulus is used or not. The idea that no fiscal stimulus would result in lower borrowing is a nonsense. We all know that, because the recession would go on longer and deeper, more businesses would fail and more personal suffering would take place. There must be a repayment of the borrowing, and the Chancellor had to set it out. In fairness, he spread it over a number of years.
	I make one other suggestion to him from my experience as Chief Secretary to the Treasury of five years where, as I said, I sadly had to spend most of my time cutting public expenditure, which was not what I came into politics to do. The Government tell us that they have found another £5 billion of efficiency saving. I say to the Government that if departments have accepted £5 billion, there is room for a lot more. I hope that they will not just settle at £5 billion. I can tell them some ways of doing that, but perhaps not now.
	In conclusion, if there is a better alternative than what the Government are doing, I would like to hear it. I agree with what the noble Lord, Lord Skidelsky, said earlier—that the 20-odd billion pounds of fiscal stimulus may well not be enough. I hope that the Government can give me an assurance that in due course, they will, if necessary, find sources of increased capital expenditure in the public sector to boost borrowing even more, because if that is the only way of reducing suffering in the business sector and the personal sector, it would be well worth doing.

The Earl of Courtown: My Lords, I do not pretend to be any expert on the economy, like the noble Lord, Lord Barnett, whose wise words we have just heard, nor can I claim to understand in any great depth the best course for macroeconomic policy. What I can tell noble Lords is that I understand the problems facing SMEs, such as that of ensuring that there is enough money in the bank account to pay suppliers and to put wages in the packets of the workers at the end of the week.
	The noble Lord the Secretary of State ably described the situation facing the economy; it is not worth repeating or getting even more depressed about than we already are. So where are we at the moment? In a recent debate, I highlighted the plight of small and medium-sized enterprises. A steep decrease in consumer confidence and tough economic conditions have continued to push margins. SMEs are facing a drop in business, difficulties obtaining credit and the consequent insufficient liquidity to meet their financial obligations. That puts many in danger of following the vicious cycle through to bankruptcy. This is of serious concern for the economic health of this country. As noble Lords have said, SMEs are of vital importance. They employ 60 per cent of our private sector, a total of 13 million people. They could be described as the engine of the British economy.
	I accept that the Government have taken measures to deal with the plight of SMEs and I am refreshed by the importance that the noble Lord, Lord Mandelson, attached to the survival of SMEs in his opening speech. In the Pre-Budget Report, the Chancellor presented a series of measures totalling £7 billion to assist SMEs, including funding from the European Investment Bank, a further £1 billion credit offered to worthy businesses through a temporary small business finance scheme, the ability to spread tax repayments and a delay in the increase in corporation tax. I commend the Government for this action, as it will provide some assistance in maintaining liquidity.
	Many SMEs are worthy, well run and viable. These actions will help. Furthermore, I accept that many in the business lobby have reacted positively to government action. Although I commend the Government for recent action, I ask whether more could have been done, as other noble Lords have said. The Minister, the noble Lord, Lord Bilimoria, and my noble friend Lord MacGregor cited the results of the recent survey by the Federation of Small Businesses. Perhaps I can add some other statistics from the same survey: 60 per cent of the 5,000 companies surveyed reported a deterioration in trading, 40 per cent have cash-flow headaches and have to wait longer to be paid, and 33 per cent are considering making redundancies.
	This leads me to the effect of recent government actions on, for want of a better description, the horticultural economy, an area in which I have experience. The effects of the PBR on the horticultural industry have simply not been as was intended. The change to VAT, as other noble Lords have said, could have been described as a £12 billion government own goal. Implementing the change now and the further change in 12 months is high in cost and highly disruptive. Furthermore, substantial ordinary and extraordinary price cutting on the high street is overshadowing any decrease in VAT. This is preventing SMEs in the horticultural sector from gaining any advantage from the VAT cut. The weakness of sterling is increasing the cost of anything imported, further outweighing this costly and disruptive cut.
	The VAT decrease is having little effect on the export market. The collapse against the euro and dollar does not immediately allow businesses to switch to being exporters. The capacity, skills and relationships required for effective exporting to an entirely new customer base take a significant amount of time to develop. Furthermore, the weak pound is counterbalancing key operating costs such as the decrease in energy prices. These effects have led to negative consequences for the environment and employment. There is already an accelerated level of job losses in the manufacturing industry as demand has slowed. Furthermore, this is expected to decrease employment in retailing, marketing and research and development after the Christmas period. These "soft" business divisions are essential for the growth, competitiveness and development of any business in a global economy. Consequently, they would be essential to any change from import to export.
	Despite the Chancellor's insistence that climate change will not be overshadowed by the economic difficulties, pressures on the business front line are causing the reverse. Growing business and personal finance problems are preventing the long-term environment mindset from prevailing in business decisions. Sadly, this is simply because it can no longer be afforded.
	The noble Lord, Lord Borrie, raised the subject of penalties for non-payment of outstanding accounts. Legislation is already in place, and I agree with what he said, particularly when he referred to repeat business.
	We are in a situation where well run small businesses throughout the country are threatened by the consequences of bad business practice on the part of the country's banks. As one journalist said, only SMEs contributed more in deposits than they withdrew in credit in recent times. Yet it is they who are most vulnerable to the rapidly changing economy; they are in the terrible position of being at the sharp end of a crisis that they contributed very little to. SMEs are in the front line of this economic battle. Despite this, the assessment of the Horticultural Trades Association suggests that SMEs in this sector and possibly many others have been left with little with which to tackle liquidity issues. Even excluding the problems associated with the VAT cut, the decreasing strength of sterling and employment issues, a £7 billion stimulus package is insufficient for a sector employing 13 million people. Currently, SMEs leading the economic fight-back have few resources to tackle the enemies of decreasing liquidity, demand and credit.

Lord Lipsey: My Lords, had this debate been held just a week ago, I should have had to declare an interest as chairman of the Financial Services Consumer Panel. I resigned that position following a civilised row with the Financial Services Authority about the role of the panel and the resources devoted to supporting it. My personal fate is of no interest to the House but I think that there are underlying issues here of profound importance to the future of financial services in this country, to which I wish to devote my remarks this evening.
	What, in today's situation, should the Financial Services Authority's priorities be? One answer came from some senior Members of your Lordships' House at the excellent seminar on the crash arranged last month by the Lord Speaker. The FSA, so these senior speakers argued, needed to get away from one of its jobs, regulating the way in which consumers are served by financial services companies, and concentrate on the other—supervisory and prudential regulation. Helping consumers was a luxury that the financial services industry could no longer afford.
	I profoundly disagree with that analysis. In the short run, it is true that the FSA has to beef up and improve its performance on supervision. However, in the long run, there is something even more fundamental than the soundness of institutions, which is the confidence of consumers and savers. The restoration of that confidence cannot be brought about just by restoring the balance sheet of financial services companies; it can be brought about only if consumers resume a feeling that their investment will pay off. However, but at the moment very few consumers watching their nest eggs go down the drain feel that. Therefore, we have too little investment in pensions, too few savings put aside and too little put into protection policies, because confidence has gone.
	In general, there is no tension whatever between actions designed to restore consumer confidence and prudential action. As, on the one hand, the FSA enhances its supervisory activities, as it must, so too must it enhance its efforts to restore consumer confidence through appropriate regulation. Is it doing so? At best, and being as charitable as I can be in the circumstances, I think that the jury is out. On the one hand, I applaud the fact that the FSA is pressing ahead vigorously with its money guidance work—financial education and so on. The retail distribution review has been progressed and has important gains for consumers—for example, the end to commission-driven independent advice. On the other hand, the RDR has been watered down somewhat. In its latest manifestation, huge concessions have been made to the banks to enable them to sell their in-house brands under the rubric "sales advice". That is the kind of sales advice you get from a timeshare dealer at a free weekend at its resort—that, at any rate, is what many consumer representatives fear.
	Another retreat concerns the FSA's flagship Treating Customers Fairly programme. Themed visits to firms have been dropped. Then there is my poor old consumer panel, where I sought a wider role to deal with the myriad issues raised by the crash—repossessions, proper compensation for depositors and so on. The FSA plans to appoint a further 318 supervisory staff. When I left the panel, it had two non-administrative staff in post and I was denied the half-dozen or so who would have enabled me to do the job.
	What is to be done? There are three things. First, the FSA wants to confine the consumer panel to its old core role of advising as an in-house critic of the FSA. That is going to happen, but at least under its new acting chairman, Adam Phillips, who is an excellent man, it should be given enough staff to fulfil that minimal role, not the tiny number of staff that I was allowed.
	Secondly, the FSA's insistence on this narrow role for the consumer panel has created a vacuum in representing consumers in the wider world. That vacuum must be filled and the best body to do so would be Consumer Focus—the old NCC, now revived under the splendid leadership of the noble Lord, Lord Whitty, and its chief executive, Ed Mayo. It has to acquire the expertise and the locus to play the wider role that I wanted the consumer panel to play, but the FSA does not want that.
	Thirdly and finally, I want to strike a slightly more speculative note. When the immediate crisis has passed, we will have to have a major debate on the future of financial regulation. That is inevitable and there will be lots of contributions. My fundamental question was raised earlier by the noble Lord, Lord Sawyer. Is it sensible for prudential regulation on the one hand and retail regulation on the other to be combined in a single institution? There will be one body that somehow has to deal with all the ways in which products are mis-sold or mishandled or when consumers are ill informed, and at the same time will have responsibility for upholding the integrity of the financial system.
	I was not in this House for most of the proceedings on the Financial Services and Markets Bill in 1999. Indeed, as a member of the board of the old Personal Investment Authority, I arrived just in time to sign my own death warrant by voting for the Bill's enactment. Before that time, I remember going to see Alistair Darling in opposition and arguing, unsuccessfully as it turned out, for the then fashionable alternative to a single regulator, which was called the "twin peaks" solution. There would be one body for retail regulation and another for prudential regulation. They would be separate institutions each with its own last to stick to. Time does not allow me tonight to develop the arguments in full. There are arguments on both sides, but in our current situation and given what I fear to be the move away via the FSA from the due attention that should be paid to consumers, I think that that approach deserves another look.

Baroness Garden of Frognal: My Lords, in this wide-ranging debate, like my noble friends Lady Sharp and Lord Cotter I shall refer to training, apprenticeships and the role of employers. In the current economic situation it has become increasingly challenging for employers to fulfil their part in training and education.
	As a nation we have centuries of experience of education, training and apprenticeships. All three disciplines have evolved sometimes for the better, sometimes for the worse. Where the forthcoming Bill promises reform, we hope that our debates will be influenced by a great deal of good practice which has been gathered over the years and that we shall not be reinventing wheels or proposing change for change's sake.
	On these Benches we believe that the best results come from winning hearts and minds. Those mastering manual and practical skills take particular pride in responsibility for their achievements. Enthusiasm is sucked out when doing a job well is deemed less important than proving to unseen external bodies that boxes have been ticked. The most effective apprenticeships are when the learner has a genuine interest in their trade or craft and the employer, trainer or master has skills and knowledge that they are enthusiastic in passing on to a succeeding generation.
	The Government should seek to encourage, not stifle, motivation. One of the quickest ways to discourage is to introduce overbearing regulation from the centre. Central government currently has a grip on education and training which risks excluding employers and channelling learners into the assumption that success lies principally in meeting external targets.
	Employer participation has been built into many parts of the education system. At school, work experience is part of the curriculum. Diplomas and apprenticeships require input from employers although, as we heard from my noble friend Lady Sharp, a diploma is not quite enough input from employers. Accreditation for vocational qualifications is possible only with on-the-job evidence. Yet more than ever businesses, especially SMEs, need to concentrate on developing trade, making a living and—we hope—a profit. The time and resources for training can get squeezed out. Government actions are not always helpful. Noble Lords have already referred this evening to the announcement of reducing VAT from 17.5 per cent to 15 per cent. It made good headlines, but at what short-term cost to business? I heard last week from a major DIY chain of the daunting task of changing labels and prices on every VAT-able widget on every VAT-able shelf. Of course, the tills all had to be changed too. An additional concern was that customers had been led to expect lower prices and would be the first to complain if any apparent savings were not immediately passed on. Yet the new prices, which were 46-47ths of the old prices, were hardly a startling budget.
	What about SMEs in the run-up to Christmas, with catalogues printed and stores hoping to be at their busiest? My noble friends Lord Smith and Lord Cotter have already referred to the excellent reports from the Association of Chartered Certified Accountants, which records that barely a quarter of SMEs have any managers with financial qualifications. How much more time-consuming is it for them to implement short-notice changes to pricing? Will the Minister say what consultation took place with businesses large and small before making the VAT announcement?
	The country has a regrettably poor record of financial literacy, a theme propitiously chosen by the current Lord Mayor of London during his year of office. He will know as well as anyone that the City of London's position as a world finance centre can be sustained only by replenishing our population of those financially literate. He holds an ancient office; by contrast, the Mayor of London holds a modern office, and today we read that he, too, is bringing his influence to bear on promoting the City and financial services. That should be a powerful duo.
	We have had some positive feedback from the manufacturers' organisation, the EEF, which reported that 60 per cent of large companies intend to expand apprenticeships in the future. Many already contribute to training in smaller enterprises in their supply chain, and that is to be encouraged but, with the best of intentions, training budgets are likely to be tightened.
	Another government plan affecting apprenticeships is the increase in weekly wages from £80 to £95 a week from August 2009. This will be welcomed, but may well cause employers to think even more carefully before taking on apprentices. More funding has been promised, and we should like to see a greater proportion of it available for adults, who make up a critical part of the workforce seeking new skills.
	Whatever the response of employers, we can be sure that further education colleges will have a key part to play in training for work. Their commitment and care have been demonstrated recently towards students whose grants have not come through. The breakdown in the educational maintenance allowance system resulted in some colleges making funding available from their own resources to encourage those most disadvantaged not to drop out.
	The FE sector is being tasked by Ministers and the Learning and Skills Council to come up with innovative and imaginative schemes to respond to the heavy job losses anticipated. Its involvement will need to be through services of career information, advice and guidance, as well as in its provision to reskill and retrain. Colleges have a fine record in managing their curriculum offer to meet employment growth. They have been responsive to the demands for higher skills in sectors such as construction, engineering, health and social care. They deserve the public recognition and resource to match the demands made of them. The Association of Colleges has recently declared:
	"Our main concern is that funding of colleges should be sufficiently flexible to allow them to respond to local economic circumstances".
	It also points out:
	"Programmes must be sufficiently flexible to allow apprentices to participate when not directly employed. In sectors like construction is has always been necessary to help people acquire skills before they start on site. In other sectors affected by the recession it is necessary to support apprentices to complete their course".
	Will the Minister offer reassurances that government measures will include appropriate funding for off-the-job training, a lighter touch in regulation and documents expressed in plain English? The simpler it is for industry and education, employers and trainers to work together, the better they will be able to respond to these difficult times and create a skilled workforce for the future.

Lord Hunt of Chesterton: My Lords, it is with some trepidation that I join this economics debate, but since Chancellors of the Exchequer now pronounce on climate science, I think it is okay for anyone to join in. I join other noble Lords in welcoming the gracious Speech. I particularly endorse the Government's commitment to economic development, improving the environment and ensuring security in the short and long terms by working to combat climate change. It is because of the link between those policies that I am speaking in this debate. I declare an interest as chairman of Cambridge Environmental Research Consultants, a small company in Cambridge, and as vice-president of Environmental Protection UK.
	I am an itinerant academic. This has enabled me to see that the UK is a good place to do business, particularly by comparison with other European countries. Last week, a German professor from Berlin commented that the Germans are now copying the British approach and enabling people to form small companies without the penalising initial down payment that used to be required, although that is still not quite the case in France.
	The Lisbon declaration was a really important development for Europe, but this needs to be made a reality, particularly by ensuring that the other EU countries have the kind of flexible arrangements that we have in the UK. This is in our interests, because, as I know from my own experience, working with companion companies in Europe means that we all need to work at the same level.
	The Labour Government have assisted small high-tech companies considerably by not taxing company profits where they are reinvested in research and development, which used to happen. They have also helped women in small companies with maternity leave, and women's careers have been greatly helped.
	I welcome the speech of the noble Lord, Lord Mandelson, last week on how Governments can help business with smarter policies. I emphasise the crucial need for more open and decisive policies on all kinds of data and information. This is the new age in which new business is being formed, and we certainly need new approaches.
	There is no point in expanding research and development unless its products are available and can support UK business. I welcome the way in which the Department for Business, Enterprise and Regulatory Reform under its present leadership—and, if I may say so, under its former leadership, now sitting on the Cross Benches—is now taking this issue more seriously. Competitiveness is an essential element in running UK business in this globalised world. If you are not free and open with information, other countries will clearly begin to dominate.
	In some respects, the UK, with its centralised health, social and security data, not only enables government to operate more effectively—just compare our low health costs with those in the United States—but enables many IT companies to provide highly beneficial services based on these data, which could greatly expand in the future. I am disappointed by the unconstructive tone taken by some parties and the judiciary about data storage. We need to know more about our society, not less, although we need to use this knowledge in the most beneficial way. Clearly there are teething problems but, as with the Tory reforms of governmental processes, bold action by the UK will doubtless give business to the UK and enable other countries to follow us.
	However, in some important fields of science, technology and the environment, the UK and other European countries are lagging significantly behind the United States in providing scientific and other data readily and at an economic price. The insurance industry in London has frequently commented, as have many other small companies, that it uses global environmental data directly from the United States, although it would like to obtain them from UK government agencies, which have to charge much more.
	European Governments and their agencies are now recognising that more data need to be supplied more readily and cheaply if environmental businesses are to provide the services that the public need to safeguard and improve environmental quality and security, such as flood warnings and protection, as well as to contribute to national and international environmental goals. Some statistics indicate that the environmental industry is now as large as the pharmaceutical and aerospace industries, and needs to be taken very seriously. The Government should be able to take a more strategic role in policies about the data for this industry through their ownership of agencies such as Ordnance Survey, the Met Office and many others, and through their use of purchasing powers when they buy services. The report of the Department for Business, Enterprise and Regulatory Reform in March showed how a business-oriented policy might well be introduced. However, the Government are still in a muddle about whether their agencies are supporting the private sector or competing with them, as the recent speculation about selling off certain agencies indicates.
	It is clear that the United States policy, under which government agencies provide data very freely and it is the government agencies' job to support the private sector, is effective. Thirty-nine per cent of the global environmental business is in the United States, 8 per cent is the UK's and 17 per cent is Japan's. The United States Environmental Protection Agency helps US business internationally. Our Environment Agency, as I learnt from previous managers, is not encouraged to do that, and UK agencies—I used to run the Met Office—are not mandated to spend their time in any way helping UK business. It is not part of their job description.
	Furthermore, as foreigners have commented, the websites of UK agencies and government departments are poor advertisements for the services provided to UK government by UK businesses. They would naturally expect to see them on our websites. This could easily be fixed with immediate and substantial benefits at minimal cost. There are also opportunities through environmental action, data process, communication and feedback for the Government—working with the environmental business to stimulate the economy, as the Prime Minister has emphasised—to move in new directions to meet the environmental objectives, such as resilience against extreme adaptation, climate change and mitigation.
	In the downturn people will spend money, not for luxuries, but as investment. I believe if people had more information—about how they could spend their money on their house and so on—they would be in a position to invest and this would help our economy. In the United States, as a delegation which I lead found, this approach is very strong. A lot of information is provided through museums and big DIY centres, to encourage people as to how they should invest in their house and property. There, there is a particular problem with hurricanes, but also climate change. I have spoken to my noble friend Lord Hunt—one of many "Lord Hunt"s—about introducing this decision for the UK. There are ways in which the smart approach could well be adopted and I commend the gracious Speech to this House.

Lord Bates: My Lords, in a debate on economics and business, there is necessarily a huge number of statistics bandied around. Probably the most staggering and disturbing, for all Members of the House, would be the statistic that last year there were 27,000 people whose homes were repossessed. This year that figure will probably rise to 45,000. Next year that is likely to rise to 75,000 repossessions. Another statistic is that more than 1 million homes are currently in negative equity. Another statistic is that when those people's homes are repossessed, they join a list of some 4 million who are currently on the social housing waiting list.
	These are staggering and depressing statistics because, in the midst of the economics, a huge cost in human suffering comes as a result. We know that debt and issues such as home repossessions are prime causes of family breakdown in our society. At this time of year, I want to restrict my remarks to focusing in on the measures which have been proposed to tackle that because they leave me with a certain amount of confusion.
	On the first point of confusion, I want to speak about the home owner mortgage rescue scheme and the support scheme, which it was not actually in the gracious Speech. I was present and I did not hear it. However, as it was mentioned in the other place by the Prime Minister, I take it that it is legitimate to raise this and that I am not out of order. It comes on the back of a number of mortgage rescue initiatives. The mortgage rescue initiative announced on 2 September, leaked to the press a few days earlier, proposed a whole series of initiatives.
	Before I turn to those, I want to say a few words about Northern Rock. I say this as someone from the north-east. Northern Rock has been mentioned for the many good things that it has been doing in the region, but I am afraid that repossessions are certainly not one of them. Its performance has been appalling. Up until the end of September, 4,201 homes had been repossessed by Northern Rock, which was 0.56 per cent of the housing stock on its book. That represents four times the industry average of repossessions. Forgive me if this sticks in the craw a little bit. I get a little angry when I see an institution, whose doors would not actually be open were it not for the fact that the taxpayer bailed it out to the tune of £35 billion, behaving in such an uncharitable way towards people who have fallen on hard times and are in debt to much lower amounts. I would expect more.
	I am sure we will hear that the problem is solved. After pressure from, I believe, the noble Lord, Lord Mandelson, Northern Rock has come up with a scheme. It says that it will not repossess any home with arrears of less than six months. We read the headlines, which get us very excited, and we think, "There we go: problem solved". However, when you look at the detail, only 1 per cent of cases where Northern Rock has repossessed so far this year have involved such arrears. Therefore, 99 per cent of the homes that have been repossessed—four times the national average—would continue to be repossessed under the proposed scheme. That is very disappointing and concerning. I certainly would expect better of Northern Rock as it moves forward.
	We were told that the home owner mortgage scheme would bring under its ambit 90 per cent of the 11.7 million mortgage holders in the United Kingdom and that their homes would be protected from being repossessed. There was a wonderful, glorious headline in the Sun, with which I know that the noble Lord, Lord Mandelson, will be thrilled. It was about the thousands of home owners who were "Saved by the loan arranger". But after reading the headline, you look for the detail. On Radio 5 live, the housing Minister, Margaret Beckett, was asked how many people this scheme might help. The answer was that it could help up to 9,000 people over two years. We have been talking about 75,000 people next year having their homes repossessed and potentially the same number the year after that. The scheme would help less than one in 10 people: more likely, one in 15 people could potentially be helped.
	But who is signed up to this scheme? Eight banks were declared as signed up to it. Some of them said that they received the phone call to tell them about the scheme only the night before the speech. The only indication that they are committed to doing anything is the extent to which they have said that, in principle, they would be willing to work with Her Majesty's Government on a scheme of this nature. We do not know who would be eligible for the scheme or what help would be available.
	My key point is that, crucially, the scheme has a basic flaw; namely, it proposes to help people who are in debt by guaranteeing a system whereby they can accumulate more debt. How can a problem of debt be solved by more debt? I do not understand that. The fact that the Government are underwriting it does not make any difference. I would argue that two things are required. First, mortgage holders need to make basic interest repayments. It is essential that they make some repayment on their mortgage. They are party to it and they have to take on that responsibility. We are told that the age of irresponsibility is over. The age of responsibility is to begin. Some repayments have to be made.
	Secondly, people should seek debt counselling. There are some excellent organisations. Shelter, citizens advice bureaux and Care for the Family do amazing work to help people through counselling. If these things are done, it should not be possible for a possession order to be granted. No possession order should be granted if someone is making their payments. That would be a very simple solution. The fact that the eight banks quoted do not include the sub-prime lenders, the secondary lenders, which have been at the heart of much of this problem, is another reason why we need a more simple, more honest and more direct approach to save this wave of unhappiness and tragedy which will spread across this country if it is unchecked.

Lord Davies of Coity: My Lords, addressing the question of benefits and economic affairs is always very important, but now that we are faced with a global economic downturn, it has become crucial for the stability of the British economy. Everyone has been affected by the credit crunch in one way or another, as acknowledged by David Cameron when he wrote to Conservative Party donors recently. But some are more affected than others: those who lose their jobs and cannot pay their mortgages are among the most adversely affected. It is therefore the responsibility of the Government to do all in their power to safeguard the most vulnerable in our society, yet there are those who still argue that everything would be all right if the Government did nothing and allowed the markets to determine the outcome. I emphatically reject that view, but I observe that those who express it usually consider themselves financially fireproof. I take the view that a Government elected by the people have a clear and unequivocal responsibility to act. They must do all they can to protect the nation's people from the worst effects of the global economic downturn, people who are in no way responsible for the critical economic situation.
	It is all very well for the rich not to want the Government to intervene because they lose only money, but I am far more concerned about the hundreds of thousands who will lose their jobs, those who are unable to pay their mortgages and will lose their homes, and those who will experience considerable hardship. These are the people whose plight we should all be addressing. We have been here before, not perhaps with the international economic circumstances being quite so severe, but we have been here before. What did it mean? It meant mass unemployment and widespread poverty. This Government, my Government, are doing all in their power to protect our people and stave off the evils of mass unemployment and widespread poverty, and they deserve the fullest of support. The work being carried out by this Government to tackle the effects of our difficult economic circumstances is as much moral as it is political and deserves support from all quarters. It is not necessary for me to catalogue the measures being taken by the Government to deal with the economic crisis, we all know them, and they have already been highlighted in the debate.
	Earlier I said that we have been here before. In the 1920s and 1930s, south Wales, like many other parts of Britain, experienced mass unemployment and widespread poverty. It was a time when wages were cut and pits were closed. It was a time when my grandfather, a former miner, could not find work for more than a decade, and only secured work in 1939 at the outbreak of the Second World War. It was a time when my mother, her sister and my mother-in-law, all teenagers, along with thousands of others, came to London to work in service for the gentry in order to send money home. The rich gentry who these girls worked for were well cushioned from the deepening recession at the time, as no doubt they will be now.
	Last week I received a Christmas card from my noble friend Lord Lofthouse of Pontefract. Apart from containing the biblical verse of Christ removing the moneylenders from the temple, my noble friend stated in his own words, "People are more important than wealth". Those words not only rang true, but reminded me that the concept is the foundation on which the Labour Party was formed in 1906. The Labour Party, the democratic socialist party that is in government now, having won three consecutive general elections in the past 11 and a half years, is a Government who have enabled considerable wealth to be provided over the past 10 years for the benefit of all our people. The Labour Government, led by Gordon Brown, are recognised by the people of this nation as a Government doing their level best to safeguard their interests in this time of difficulty.
	Of course, we do not know the extent to which the measures taken will succeed. We will have to wait a while for that. But we do know that the Government are acting in a very positive way whereas it clearly appears that the Opposition want to do nothing or do not have a clue what to do. At the very least, today we are not experiencing 17 per cent interest rates as was the case with their last Administration.
	We are all aware of our Prime Minister roaming the world to persuade leaders of other countries to act together to tackle the unique global economic crisis, and I believe that he is succeeding. I have known Gordon Brown for more than 20 years. He is serious, sincere and passionate; he is far from shallow and came into politics through conviction, not ambition. He does not have the characteristics of a spin doctor, he is not a one-liner politician and he is not a superficial political point-scoring person. If anyone can get us out of this worldwide economic crisis it will not be the banks, it will not be the building societies and it will not be the insurance companies—it will be Gordon Brown and the Labour Government.
	Her Majesty's gracious Speech last week contained four direct references to people. If you add families, victims, men, women, patients, staff, children and parents, the references amount to 14—but there were no references to wealth, clearly reflecting that the Government are acting in accordance with the concept that people are more important than wealth.
	Finally, last week I, like many others, saw the Conservative leader on television commenting on the Baby P case. He said that he did not believe that Sharon Shoesmith, suspended for failing in her duty to protect Baby P, should receive her £100,000 a year salary. I agree with him—but I also believe that the chief executives who, through negligence, caused businesses to collapse should not have walked away with exorbitant golden handshakes. They were the cause of large numbers of workers losing their jobs and, in some cases, their pensions. Unless I have missed something, I do not recall David Cameron and the like expressing the same view then as they do now. Is not the height of hypocrisy being displayed by the Opposition, particularly in the time of our great difficulty?

Lord Jones of Birmingham: My Lords, I thank the noble Lord, Lord Hunt of Chesterton, for his kind words. I also join him in saying to the new Secretary of State: it was a good start. However, perhaps I may lay two issues at his door.
	First, the accent in the Pre-Budget Report was on stimulation of the consumer. However, regardless of a VAT reduction, people will not go shopping for big-ticket items when they are out of work. I hope that the Secretary of State's department will maintain a sustained emphasis on keeping people in work and on training immediately those who have to be trained in alternative employment because of inevitable redundancies
	Secondly, at the start of today's debate the Secretary of State said that, when we come out of recession,
	"there would have to be a rebalancing of the public finances".
	The nation is in peril of experiencing long-term detriment to necessary private sector growth, because a shrunken private sector will be working valiantly to pay the extravagant and unfunded public sector pensions to which the Government committed only a few years ago, including continued commitment to a retirement age of 60 for current public sector employees. That is entirely inconsistent with the private sector having to work longer these days for no better pay and certainly less job security. It means that people will have to work longer, in part to pay for those public sector pensions in the long term. I cannot think of anything more economically or socially divisive than employees in our eventually recovering economy having to face that division.
	Lastly, I say to the three parties in this House and in the other place that there is a need in the year ahead—one of the most perilous years economically for this nation since the Second World War—for all politicians to strike a better balance. Sadly, at the moment, that is more noticeable by its absence. The taxpayer is a shareholder who wants strong, profitable, dividend-distributing banks. The taxpayer is a borrower who wants interest rate cuts passed on as extra distributable income for the private individual and as cheaper money to help with the rising cost of business. The taxpayer is also a saver who wants greater reward for previous—dare I use the word—prudence. Is that difficult? You bet it is. But balancing different interests and taking very difficult decisions is what people elect Governments to do. When those different interests come together all in one person—the taxpayer—there must be a displayed use of balance. That has been conspicuous by its absence across the political divide. I hope the country gets better in the year ahead.

Lord Newby: My Lords, the debate today has concentrated on two questions: the nature and scale of the economic problems we face, and the nature and scale of the response. The majority of the time has been spent on the second of the two questions. I intend to follow that pattern.
	As for the nature and scale of the problem, slightly different views have been expressed about how we got here. To summarise, however, I think that there is agreement that we now have a major economic crisis, caused in large measure by a financial crisis. The differences expressed have been largely to do with who is to blame and how much the Americans, as opposed to the British, should bear the burden of opprobrium. Frankly, that is a second-order question. The real question is: how bad is it going to get and what are we going to do about it?
	As for the scale of the problem, the Government set out in the Pre-Budget Report their estimate of how deep they expect the downturn to be. I think it fair to say that most people believe that that is an underestimate. We heard the suggestion today, for example, that GDP next year might fall by as much as 2.3 per cent, and there have been many suggestions that it will take us longer than the Government predict to see growth re-established.
	To make some sense of the scale of the problem, I returned to the old adage, "Why look in the crystal ball when you can read the book?". Noble Lords have mentioned this evening a string of stark and unwelcome statistics. The 0.5 million increase in US unemployment in one month was one. Another—which I am not sure was mentioned but is equally stark in the UK—is that car sales have fallen by 37 per cent in a year. One which I found almost incredible is that energy consumption in Italy was apparently down 30 per cent last month. Those are immensely worrying figures.
	Equally, we have already seen from the Pre-Budget Report how these two crises are having seriously deleterious effects on the government finances. Page 32 of the Pre-Budget Report shows that, since the Budget, the Government's cash requirements have already increased by £108 billion beyond what was envisaged at the time. A significant proportion of that has to do with recapitalising the banks and putting money into the Bradford & Bingley, but a requirement of £26 billion has been caused over that short period by what is described in the Pre-Budget Report as a weakening of the fiscal position; that is, taxes are not coming in at the rate predicted and expenditure is increasing as the automatic stabilisers come into effect. So we are undoubtedly faced with the greatest economic crisis since the Great Depression.
	That requires from us a proportionate response, and noble Lords have given many reasons for doing so. In addition to the obvious moral argument for mitigating the human costs of long-term unemployment, there are the more narrow economic arguments. If companies go bust, you cannot necessarily reinvent or reinvigorate them when the upturn comes. We know very well that the longer people are out of work, the less likely it is that they will ever get work again.
	I turn now to the nature and scale of the response. The elements of the response clearly include getting the banks to lend again; fiscal and monetary policy; and a raft of other issues, including the skills agenda, which have been discussed this evening. As for getting the banks lending again, we broadly welcome the Government's actions in this area. However, there are one or two further things that they could do. First, they could make better use of their leverage as part or full owners of a number of major banks. This should include appointing explicitly government directors. The noble Lord, Lord Paul, spoke about the need to have manufacturers represented at higher levels of decision-making in bank lending. Perhaps we could have one or two manufacturers among them.
	Secondly, the Government need to set their strategy. Ministers have sometimes seemed to think that there is no difference between setting a strategy and deciding which individual account holder is to be given a loan or have a loan withdrawn. That is a relatively straightforward distinction and the Government should follow it. Thirdly, taking up the point made by my noble friend Lord Oakeshott, the Government should use the nationalised or part-nationalised banks to work with the Post Office as its savings products partner, rather than the Bank of Ireland. We fear that the Bank of Ireland route is likely to lead to significant difficulties down the track. Fourthly, making the Banking Code statutory, as the Government are planning, is a good idea. I share the views of the noble Lord, Lord Broers, on that. Will it be done in the current Banking Bill in your Lordships' House before it goes back to the Commons, or will a second Bill be introduced later this Session? If so, what exactly is the Government's planned timing?
	The final issue is whether the Government believe that further statutory regulation is needed in corporate governance, as the noble Lord, Lord Smith, mentioned, and whether we in the UK might look again, as the noble Lord, Lord Low, implied, at least at the principles of the Glass-Steagall Act. Are the Government giving any thought to either possibility?
	As for monetary policy, we on these Benches welcome the MPC's dramatic reduction in interest rates. However, there is a possibility that if prices continue to fall, we could fall into the liquidity trap of zero interest rates. In those circumstances, noble Lords on all sides of the House might surprise themselves by looking to Milton Friedman. He argued that in such circumstances a quantitative easing is needed. To put it in layman's language, he argued in favour of providing "helicopter money", whereby the Government print money and effectively drop it from the sky in order to get expenditure going. I am sorry that, in his evocation of Milton Friedman, the noble Lord, Lord Higgins, did not extend his remarks to that aspect of Friedman's thinking. If he had, he might have found himself in an unlikely alliance with the noble Lord, Lord Smith, on the appropriateness of Friedman's thought. In dealing with the kind of severe deflation we now face, we find a most surprising conjunction: we might need to bring together Friedman and Keynes in producing a comprehensive policy response.
	On fiscal policy, there seems to be a near-unanimous view across the globe that a substantial and co-ordinated fiscal stimulus is needed. As noble Lords have pointed out, such a stimulus is being adopted across much of Europe and advocated on a very serious scale by President-elect Obama. There is, however, a notable exception to this consensus. The Conservative Party is not part of it. On 26 November, George Osborne in another place said that the Chancellor's plans have taken the country,
	"to the edge of bankruptcy".—[Official Report, Commons, 26/11/08; col. 740.]
	That is childish nonsense. He should take a leaf out of the book of an illustrious predecessor, in the shape of Harold Macmillan. In 1956, when he was Chancellor and the debt-to-GDP ratio was 146 per cent, as against the maximum of 57 per cent which the Government envisage over the next few years, Macmillan said:
	"Whatever the temporary difficulties from trying to run too fast, if we stand still, we are lost".
	Well, I fear that the Conservative Party in the Commons has decided to stand still, and, certainly, it looks lost.
	As for the specific route that the Government have adopted to push the fiscal stimulus, in the form of the VAT reduction, I share the qualms of a number of noble Lords about its effectiveness and whether it is the best conceivable route that could have been taken. In his Statement, the Chancellor said:
	"This temporary reduction is equivalent to the Government giving back some £12.5 billion to consumers to boost the economy".—[Official Report, Commons, 24/11/08; col. 495.]
	However, the Pre-Budget Report makes it clear that half the increase, in real purchasing power, translates into an increased volume of spending, with the remainder used by households to bolster their finances. So even on the Government's own assumptions, only half of it will serve the purpose for which it has been introduced.
	Our views are that there should be a rebalancing of the tax system, with higher rates of tax, particularly corporation tax, funding a cut in income tax for those at the bottom end of the scale. The reason for this, apart from any arguments of fairness at this moment, is that those on lower incomes have a higher propensity to consume than those on higher incomes, so a rebalancing of the tax system in itself, without an overall cost, leads to a fiscal stimulus. There is an argument for going further, but we have argued that any additional stimulus should take the form of programmes that boost investment.
	The area that is crying out for investment more than any other at the moment is housing. The Government's plans to increase housing expenditure simply fail to meet the scale of the problems, particularly at a time when many housing associations are on the verge of collapse because they have entered into rather speculative deals with private sector developers who now cannot deliver. Frankly, unless the Government do significantly more than they currently intend to do on social housing, not only will they miss a major opportunity to have a real impact on a problem that has got worse and worse during the lifetime of this Government, they will also miss a major opportunity to put into employment many of those unemployed construction workers who are currently a drain rather a contributor to the economy.
	Looking to the future, the Pre-Budget Report sets out how the Government envisage that they will recoup the money. Given the uncertainties, that seems an almost completely spurious exercise, looking so far into the future. Certainly, the 45 per cent tax rate looks highly unlikely to yield the funds that the Government predict for it.
	I move on to one or two other points that have been raised in the debate. There has been some discussion of the global economic framework. I should like to ask the Minister in particular whether the Government are now confident that the declaration made at the end of the Washington talks that the Doha round would be concluded before Christmas is now likely to come to pass.
	A number of noble Lords, including the noble Lord, Lord Bhattacharyya, the noble Baronesses, Lady Sharp and Lady Garden, and the noble Lords, Lord Rooker and Lord Layard, talked about the combination of education, innovation and science in apprenticeships, which is clearly another area of crucial importance in getting the economy moving again. I have great sympathy with the comments of the noble Lord, Lord Rooker, about the importance of science for cool professions such as fashion and motorsport. He might have added "computer games". It seems to be a major problem that the way these subjects are taught squeezes all the interest out of them. Instead of young people aged 10 or 12 being motivated to think that learning science will mean that they can do a really interesting and sexy job, they are faced with a series of bureaucratic, exam-based hurdles to get over, so any interest in science is squeezed out of them rather than enlivened.
	A number of noble Lords, including the noble Lord, Lord Thomas, the right reverend Prelate the Bishop of Durham and the noble Lord, Lord Sawyer, spoke about mutuals and credit unions. I agree entirely with the comments of the noble Lord, Lord Thomas, and I hope that when we have the reform legislation on co-operatives and credit unions, we can go beyond mere technical tinkering to see what we can do in terms of regulations and, more generally, to breathe new life into the credit union network.
	The coming months will see further major shocks to the economy, and some of them will be largely unexpected. From our different points in the House, we will no doubt have different policy responses. However, we welcome the fact that we now have senior Ministers in both DBERR and the Treasury in your Lordships' House, and we will welcome all opportunities to influence them as they exercise their judgment in taking us through the difficult economic times ahead.

Lord De Mauley: My Lords, this has been a very interesting and deeply sobering debate, and I am most grateful to all noble Lords who have taken part. My noble friends Lady Noakes and Lord Higgins, among several others, have given a thorough and informed analysis of the economic situation. The liquidity crisis, to which my noble friend Lord Patten among others referred, over which the Government have presided and of which the Banking Bill will, we all hope, play its part in preventing a recurrence, is but one half of the wider economic disaster facing our country, our businesses and our people.
	My noble friend Lady Noakes, who will undoubtedly ensure that the Banking Bill receives rigorous scrutiny as it passes through this House, spoke primarily on the broader economy, as did several noble Lords, including my noble friends Lord Marlesford and Lord Caithness. Other noble Lords focused on specific areas. My noble friend Lord Bates focused on home owners. In the time I have available, I will concentrate on the effect that the recession into which we find ourselves plunging will have on the business sector, and raise some questions for the Minister about how the Government's programme, set out in the gracious Speech, is intended to address the problems of business in the difficult times that we are entering.
	The Secretary of State, who opened this debate, is reported to have undertaken a last-minute campaign to rid the Government's programme of anti-business measures—for which, at least, we should all be grateful. We look forward to seeing whether he has had any success in inserting anything that is pro-business. The equality Bill, for example, represents an opportunity to simplify the sort of regulation that has cost businesses dear over the past 10 years. We will study the details now that it has finally been published, to see whether it achieves that. Unfortunately, I am not optimistic, given this Government's history on regulation. My noble friend Lady Noakes also touched on this. I remind your Lordships of the Regulatory Reform Act 2001 and the Legislative and Regulatory Reform Act 2006, the second introduced because the first simply did not work. Both were potentially powerful Acts that promised great things, but so far have achieved so little. Let us hope that, by now, the Government have realised that despite their continuing love of box-ticking and form-filling, businesses have better things to do.
	However, I must give credit where credit is due. In one department, the Government have learned to listen to Conservative suggestions. For several years now, the Department for Work and Pensions appears to have been reading Conservative policy papers with flattering attention. Both the welfare reform Bill and the previous Welfare Reform Act 2007 contain provisions ensuring the use of incentives to seek employment, the use of private and voluntary sector delivery on a payment-by-results basis and the reassessment of incapacity benefit claimants to ensure that the system is not consigning 2.5 million people unnecessarily to lifelong unemployment. They are all Conservative recommendations. One can only imagine how much the taxpayer could have saved during the golden opportunity presented by the past 10 years if these Conservative policies had been accepted earlier.
	As it is, the reform of incapacity benefit will not be completed until 2013, according to the DWP. In many areas it is almost too late. The Government appear to have waited until an OECD prediction that we will suffer the worst rise in unemployment of any G7 country before coming to the conclusion that giving people access to information about new jobs might be helpful. However, a recent moratorium on closing jobcentres is not much use when 492 centres have been closed since 2002, and only three will apparently be saved by this policy.
	Of course, information about available jobs will not be enough to help the thousands of people facing unemployment. Improving the skills base of the UK workforce is critical but, as the 2006 Leitch review made clear, a recession was not necessary for Labour failure in this area to be obvious to most. With the children, skills and learning Bill, Labour are once again planning to rely on quangos to deliver what needs to be genuinely rooted in the business environment. After two major reorganisations of the Learning and Skills Council, the Government have decided that multiplying it by three is the best use of taxpayer funds. They have also decided that a statutory entitlement to apprenticeships is enough to counteract the regulatory hassle and inappropriately targeted funding and dumbing-down of standards that have already resulted in their missing every apprenticeship target they have set themselves.
	Of course, excessive bureaucracy and endless reorganisations are not confined to skills and training. One need only look at the 3,000 business support schemes run by over 2,000 public bodies and their contractors to see how public finances have been run into the red with so little return. Even the Government appear to have realised that the £10 billion to £12 billion they have sunk into these schemes might not have been entirely well spent. Two years ago, they thought that a reduction by 2010 to 100 schemes might result in a little more efficiency. I think that they have so far managed to scrap 10—the Minister will correct me if I am wrong—so there are 2,890 to go.
	Regional development agencies, of which my noble friend Lady O'Cathain spoke with some force and which are to be given more powers in the Local Democracy, Economic Development and Construction Bill, might have been thought by a Government less devoted to quangos a good place to start. After all, they spend more than a third of their funding on administration costs and are widely considered to be completely disconnected from the very businesses that they are meant to be supporting. Apparently not, however. Can the Minister give us an indication of how many of the remaining 2,890 superfluous schemes are likely to have been abolished by the target date?
	The Government have a lot of convincing to do on each of the Bills I have mentioned so far. One Bill has unequivocally been drafted with business in mind: the Business Rates Supplements Bill, to which my noble friend Lady Noakes and the noble Lord, Lord Cotter, referred. It gives councils the power to raise business rates for local economic development. I would be most interested to hear the Minister's view on this Bill, and specifically whether he considered the introduction of a mechanism that would allow the raising of business rates to replace central funding, an innovation carefully calculated to enhance the confidence and survival prospects of businesses at what is clearly such a difficult time for them. Local councils are certainly better placed to promote economic development than regional development agencies, but I very much doubt that they are better placed than the businesses that make up the economy and which will be expected to bear that cost. We will be looking at this Bill very carefully indeed when it arrives in your Lordships' House.
	We on these Benches, by contrast, would step much more carefully when raising taxes on business. It is clear that we are not in agreement with the Government on this, as in so many other areas. Rather than fiddling in the margins and implementing expensive schemes with no guarantee of success, we would concentrate on maintaining the smooth running of the engine of our economy—the small businesses to which my noble friend Lord Courtown referred, which provide the majority of private sector jobs and more than 50 per cent of private sector turnover.
	My noble friend Lady Noakes explained that, despite the Government's banking package, they have failed to remove the blockage on lending to businesses. My noble friend Lord Wakeham underlined how vital the availability of finance is to businesses. My noble friends Lord MacGregor of Pulham Market and Lord Trenchard also underlined that point. My noble friend Lady Noakes explained Conservative policy which would address this blockage on lending, to which my noble friend Lord Tugendhat also referred. Rather than increasing national insurance contributions at a time when many companies are already realising—as the noble Lord, Lord Bilimoria, said—that they cannot afford to maintain their headcounts, a Conservative Government would seek to make employment cheaper, not more expensive. We would cut national insurance contributions by 1p for very small companies and introduce financial incentives for private sector employers taking on the unemployed. We would cut small business taxes too by reducing the small companies' rate of corporation tax from 22p to 20p. Rather than imposing a costly, inflation-busting reduction in VAT—to which my noble friend Lord Marlesford, among others, referred—at a time when the Bank of England, which is responsible for responding to inflationary pressures, has cut interest rates to a historic low, we would give small businesses help with their cash flow by allowing VAT bills to be deferred for up to six months.
	My noble friends Lord Patten, Lord Sanderson and Lord Eccles, among others, spoke about the importance of pensions and savers and raised some important points. My noble friend Lord Patten suggested abolishing the requirement to buy an annuity at 75, which is, indeed, Conservative policy.
	In conclusion, the Government are insistent that the problems the UK economy is facing are all due to the global economy. They see no inconsistency between claiming the credit for 10 golden years, when every other comparable country also had low inflation and high growth, and denying responsibility when the OECD predicts that our country will suffer a deeper recession than those exact same countries.
	Government Ministers are very keen on quoting an IMF report issued in May which comments on strong policies and policy frameworks over the past 10 years—so keen, in fact, that the same quotation has been used nine times in Parliament over the past six months. It is extraordinary that no one appears to have read to the end of the page. The statement is not in fact limited to the three paragraphs published on the Treasury website but goes on to give the strongest warnings about breaching the 40 per cent public debt ceiling. Does the Minister agree with the IMF's assessment of the best way forward, and if he does, how can he justify the extraordinary fiscal loosening the Government have just undertaken? As my noble friend Lord Higgins said, how will it be funded?
	As my noble friend Lady Noakes said, this Government have presided over the creation of the longest tax code in the world. It is chock full of reliefs and credits and, more recently, postponements and deferrals, which the Government hope will postpone the full effect of a Labour Government until after the next general election. Let me assure the Minister that nobody is fooled.

Lord Myners: My Lords, it is my honour to bring today's portion of the debate on the humble Address to a close. I am sure that your Lordships will agree that we have enjoyed a spirited and productive discussion on the important subject of business and the economy. I thank my noble friend Lord Mandelson for opening the debate and for giving such a clear account of the comprehensive and judicious steps that the Government are taking in response to the global economic downturn and its consequences for us here in Britain.
	I extend my thanks to all other noble Lords who have spoken for their very thoughtful contributions. In the space of 20 minutes I shall endeavour to respond to some 50 speeches. Frankly, it will be extraordinarily difficult to do that. To the extent that specific questions were asked that I do not cover in my speech, I will of course, on studying Hansard, ensure that they are answered in writing.
	I say that particularly looking at the noble Baroness, Lady O'Cathain, who mentioned that we had not answered all the questions at the last economy debate. That was my first major debate in this House and I made a distinguishedly undistinguished contribution. For me, the only enjoyable part of the evening was when I wandered off to try to find somewhere to have something to eat and the noble Baroness and the noble Baroness, Lady Shephard, invited me to join them—they were most convivial and helpful company. That was a fine day. It was also the day when I first met the noble Lord, Lord Forsyth of Drumlean, whom I suspect I shall meet on many future occasions in the Chamber.
	Before I answer the questions, I shall make a few observations of my own about the economy. We face some of the most challenging economic conditions for a century. Irresponsible lending decisions in the American mortgage markets and the packaging of those assets into non-transparent securities have infected financial institutions around the world. At the same time, the global economy has been heavily struck by volatility in the energy, food and commodity markets.
	The euro area has been in recession since April. In Japan and Germany, GDP has already shrunk by 1 per cent in the past six months. We are forecasting 0.75 per cent GDP growth for the current year, although that growth will be achieved in the first six months of the year. In America, manufacturing output is falling at the fastest rate since 1982 and over 1.5 million jobs have been lost in the past six months. The Bank of England estimates that global bank losses could eventually exceed $3 trillion.
	The UK economy faces these global challenges from a position of relative strength compared to the downturns of the past. Even today, employment remains near record levels. The claimant count, while rising, is 2 million below the level of the early 1990s. There are still today over half a million unfilled vacancies in the economy. The discipline imposed on public finances by the fiscal framework that this Government put in place has seen debt cut and borrowing reduced.
	Between 1997 and 2007, borrowing peaked at just 3.3 per cent of GDP and ran at an annual average of only 1 per cent. Compare that to the previous 10 years, when borrowing peaked at 7.8 per cent of GDP and averaged 3.1 per cent. The noble Baroness, Lady Noakes, talks about the growth in debt as a percentage of GDP. It will increase, but it has increased in the past and we have reduced it in the past. The increase that we are projecting is precisely to address the effects of the global economic challenges on British families and British business. We are doing it from a position of relative strength. We are not doing it as we did in the recession of the 1980s, when interest rates were 17 per cent. We are not doing it as we did in the 1990s, when interest rates were 15 per cent. We are doing it against a backdrop of base rates of 2 per cent. That is evidence of stronger and more responsible economic management.
	Government debt last year was among the lowest in the most advanced economies. The noble Lord, Lord Higgins, asked how we will finance our debt going forward. We do so from a position where the cost of borrowing is at a lower rate in nominal terms—the long end of the gilt curve—than it has been for 40 years. We are in a position where there is a serious appetite for borrowing and buying government securities. We will not run risks with the public finances. The measures that we are taking strike the right balance between supporting the economy now and ensuring that the public finances are on a sustainable path.
	I listened with great care to the opposition Front Bench. I heard little of substance; I thought that it was rather lacklustre. There were no ideas and nothing fresh to say. There were no answers to questions. The noble Lord, Lord De Mauley, did not even answer the question about pensions asked by the noble Lord, Lord Patten, on his own Back Benches. I am pleased to give the noble Lord the assurance that he sought, which is that we have no plan to adversely change the taxation of pensions. The noble Lord addressed that question to the government Benches; he also addressed it to his own Front Bench, from which he did not get a reply.
	There was little acknowledgement from the opposition Front Bench of the global nature of the situation that we face and there was little empathy. We had to wait until the speeches of my noble friend Lord Barnett and the noble Lord, Lord Bates, to hear any concern expressed about the plight of people. The noble Lord, Lord Newby, spoke about the challenges facing people who risk losing their jobs and businesses, which are under threat. I heard nothing from the government Front Bench—

Noble Lords: Opposition!

Lord Myners: My Lords, I apologise; I heard nothing from the opposition Front Bench of concern for the plight of such people. Indeed, we heard the noble Lord, Lord De Mauley, refer to the "extraordinary fiscal loosening". It is indeed an extraordinary fiscal loosening, which is designed to address the very problems that we face as a consequence of the difficulties in the global economy.
	Quite frankly, the Conservative Front Bench finds itself between the Scylla and Charybdis of knowing what is necessary—knowing what needs to be done—and not wishing to acknowledge that that is the case, recognising in truth, I suspect, that they would plan to do little to help with this problem. Indeed, we see that from the observations of the vice-chairman of the Conservative Party, Mr Maples, who sits in another place, or those of Mr Redwood and Mr Lansley. Mr Maples has said that we must let the recession run its course and others have similarly said that we must accept a reduction in the standard of living. This is not what we as a Government plan to do. Perhaps the Conservative Benches were somewhat shaken by the announcement made over the weekend by President-elect Obama, which reinforced the view that what is needed is a global fiscal stimulus. Once again, we were to the fore in recommending that to major international institutions and other Governments.
	The noble Baroness, Lady Noakes, said that our banking actions have done nothing for business. Let me say what they have done for business. A sound banking system, which provides retail depositors with absolute confidence, is a critical precondition for an effectively operating economy. We have provided an important stimulus through the tax concessions that we have introduced. We are advancing capital expenditure; we are taking actions to facilitate cash-flow management for small companies; we are doing things that help an economy in a real way to address the global challenges.
	I was asked by the noble Baroness whether we have a plan B. We have a number of options which we regularly keep under review. We have seen evidence of that in our announcement of a programme of support to help mortgage holders who are experiencing difficulties in servicing their obligations. But we are confident that the actions that we have taken are the right ones to address the needs and requirements of today. I was also asked by the noble Baroness whether I thought that we had been damaged by not being in the euro. Defending something that we did not do is theoretically counterfactual. However, for the avoidance of doubt let me say that our choosing not to be in the euro was in my judgment the right thing to have done. If the noble Baroness was seeking to endorse that the Government have done the correct thing, I can confirm that I gratefully welcome her endorsement.
	The noble Baroness told me that we should consider a national loans guarantee scheme. She advanced that idea on the basis that it would be novel, imaginative and appropriate for the times. I completely agree with her. That is precisely what we have done with our small business loan guarantee scheme, which is precisely the policy that Mr Cameron and Mr Osborne have alighted on at a rather late hour in the day.
	The noble Lord, Lord Razzall, made a wise, sensitive and important series of observations. I want to pick up only one or two points. He quoted Angela Knight of the British Bankers' Association as saying that the new capital that we had provided was not available for new lending. I am pleased to tell noble Lords that I met Angela Knight and a number of her members today and made it absolutely clear to her that that capital is available for new lending. It is there to support the banks in withstanding the inevitable write-offs which we know they will experience, while having sufficient capital to meet the needs of their business and private customers. This is not a new minimum requirement for sustained capital; rather, as I have said previously to noble Lords, it is an all-weather capital structure, designed to withstand the pressures that we know bank balance sheets will have to cope with over the next 12 months so that banks are adequately capitalised to perform their economic function. I made that very clear to Angela Knight today.
	The noble Lord, Lord Razzall, also suggested that we should keep open more unorthodox measures. That was raised by one or two other Peers, including the noble Lord, Lord Higgins. I think that here we have in mind issues such as qualitative easing, which was also referred to by my noble friend Lord Layard. We listen to the advice that we receive from the Bank of England in these matters and, as I said, we rule nothing out and nothing in so far as concerns appropriate measures for the economy.
	The noble Lord, Lord Razzall, asked whether we had a timetable for joining the euro. We do not but we have a process for establishing the conditions for joining. The timetable will follow as and when those conditions are deemed to be satisfied. He also asked whether we had a timetable for Dr Cable to become Chancellor of the Exchequer. I simply advise him that he will have to work far harder in electioneering before that becomes a real possibility.
	I turn to some of the other points that were made in what, as I said, was a very informed debate. I should like to start, in particular, with issues surrounding innovation and skills. I was heartened by the fact that a number of noble Lords—my noble friends Lord Rooker, Lord Haskel, Lord Bhattacharyya and Lady Kingsmill, the noble Lord, Lord Broers, the noble Baroness, Lady Sharp, and the noble Lord, Lord Clement-Jones, from a digital perspective, spoke about the importance of education and innovation. Going through this very tricky period, those are absolutely critical to the success of our economy. This Government support continued investment in R&D by both the private sector and government. Indeed, we recently published our first innovation report, and my noble friend Lord Drayson will be chairing a new Cabinet committee which will take specific interest in matters relating to innovation. Our excellence in science, engineering, knowledge and technology will be critical in driving forward economic growth. I am pleased to confirm—a point on which my noble friend Lord Haskel sought assurance—that we continue to support science and innovation.
	There were many interesting contributions on the economy. The noble Lord, Lord Skidelsky, took us back to the days of Ramsay MacDonald and a fiscal policy move which, in his judgment and the judgment of history, was too modest. He also stressed the need for fiscal and monetary policy to act hand in hand. We are taking the appropriate steps to ensure that we have a co-ordinated fiscal and monetary policy.
	Although several others followed, the noble Lord, Lord Skidelsky, was the first Member of the House to question whether the terms of the banking recapitalisation were penal. I believe that the noble Viscount, Lord Trenchard, spoke to this, as did the noble Lord, Lord Tugendhat. I do not think they were penal. The terms that we made available to those banks that took equity investment from the Government were judged by most people to have been rather better than those available in the marketplace. But it was not our wish to penalise. We wanted to ensure that in providing support to banks through capital, liquidity and funding, we did so on an arm's-length basis which reflected good value for taxpayers.
	There was much talk about regulation and banking. My noble friend Lord Thomas of Macclesfield spoke with passion and conviction about mutuality and behavioural shortcomings in our banking institutions. We recognise that cultures were in place at a number of the world's leading banks that were simply inappropriate for organisations that should be inherently prudent and cautious in their management of risk and their assets. The noble Lords, Lord Low of Dalston and Lord Marlesford, made observations on these points as well.
	The noble Lord, Lord Low of Dalston, asked whether I would confirm whether there would be an inquiry into the banking crisis. I am happy to make it clear that I did not say that there should be such an inquiry. I said in response to my noble friend Lord Lea that if the FSA judged it appropriate there should be an inquiry into any leak that might have taken place around the bank capitalisation. A careful study of Hansard will show that to be the case.
	The noble Lord, Lord Oakeshott, referred to issues around Ireland and the Irish banks. There is an important difference between the Irish and Icelandic banks, which he compared. The Irish banks already have all their deposits guaranteed by the Government of Ireland. As a full member of the EU Ireland has access to the ECB. We note his observations and take a deep and significant interest in the quality of banks from throughout the world which operate in the United Kingdom.
	The noble Lord, Lord Tugendhat, made a particularly fine contribution and I welcome his observation that we should not underestimate the scale of the actions that have already been taken. The comprehensive programme that we have introduced was one in which he clearly saw good value. The noble Lord, Lord Barnett, observed that when it came to cutting expenditure, you should always ask for more than you are offered. I am sure that that is a good piece of guidance, but I remind him that we have made significant efficiency gains under the programme established by Sir Peter Gershon. Ministers believe that there is still more improvement in terms of efficiency of payment and procurement of services by the Government.
	I was much taken by the interest shown by noble Lords about the plight of small businesses. The noble Lord, Lord Bilimoria, started us focusing on that and there were welcome contributions from the noble Lords, Lord MacGregor and Lord Wakeham, and the noble Earl, Lord Courtown. Noble Lords can rest assured that we share the noble Earl's view that small businesses are the engine of the economy. That is one of the reasons why we have put an extra £1 billion of funding behind guarantees for bank support for businesses, plus an extra £1 billion that will come from the EIB, and tax deferment and VAT delays to ensure that small companies are in a good position to cope with challenging times.
	We are doing further work on banking regulation and look forward to the report that we have commissioned from the noble Lord, Lord Turner, the chairman of the FSA, with his views on how banking regulation can be improved. We have no current plans to introduce anything equivalent to a Glass-Steagall Act, but we are mindful of the fact that large and complex institutions bring particular regulatory challenges. The FSA has strengthened the resource that it has committed to supporting and regulating large institutions.
	There were many contributions on pensions. I do not think I can do fair duty to the important points that were made, except to say that we heard again the old canard that the Government had raided pensions. That is simply not true. The noble Lord, Lord De Mauley, encourages us to read to the bottom of the page. I encourage noble Lords on the Conservative Benches to read to bottom of the page that the abolition of the ACT claw-back, which was not supported by any logical reason, was accompanied by a reduction in corporation tax, which has been to the benefit of British industry ever since. It is worth noting that the stock market rose on the day after and for the next three years, which is a strong endorsement of the fact that it was a pro-business move. To portray this Government as raiding pension funds is simply at odds with the facts.
	My noble friend Lady Hollis made a wonderful contribution, challenging in style and content, on an issue about which she knows so much. It falls outside my departmental brief, so I rather inadequately say that I will make every effort to draw her words to the attention of the Secretary of State for the Department for Work and Pensions and my noble friend Lord McKenzie, and ensure that they are fully exposed to the logic that she advances, which I found well articulated, for allowing access to lump sums. I believe that others will have an interest in understanding it as well.
	The noble Lord, Lord Patten, made an important contribution about annuity purchases at 75. That also falls outside my departmental brief, although I am advised that there is some flexibility and some exemptions around the 75 limit. If I cannot give him a satisfactory response, I have given him a clear answer to his question about our policies on the taxation of pensions.
	I am conscious that I could and should refer to the contributions made by many other noble Lords, but with the indulgence of your Lordships' House, I propose to handle them in writing. This has been an extremely good debate. I am impressed and delighted to have been part of it. This is the first time that I have closed for the Government, and noble Lords set me an extraordinarily difficult job, as the quality of the debate and the range of contributions were so extraordinary. I commend this part of the gracious Speech to your Lordships' House.
	Debate adjourned until tomorrow.

House adjourned at 9.54 pm.